PERFORMANCE & ACCOUNTABILITY REPORT

FISCAL YEAR 2003

FEDERAL TRADE COMMISSION WWW.FTC.GOV 1-877-FTC-HELP
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 Message from the Chairman

________________________________________________________________

________________________________________________________________

I am pleased to present the Federal Trade Commission’s first

Performance and Accountability Report. This Fiscal Year 2003

report is an overview of the FTC’s mission and our achievements

and financial management activities. 

The FTC works to ensure that the nation’s markets are vigorous,

efficient, and free of restrictions that harm consumers.

Experience demonstrates that competition among firms yields

products at the lowest prices, spurs innovation, and strengthens

the economy. Markets also work best when consumers can

make informed choices based on accurate information.

To ensure the smooth operation of our free market system, the FTC enforces federal

consumer protection laws that prevent fraud, deception, and unfair business practices.

The FTC also enforces federal antitrust laws that prohibit anticompetitive mergers and

other business practices that restrict competition and harm consumers. Whether the FTC

is combating telemarketing fraud, Internet scams, or price-fixing schemes, its primary

mission is to protect consumers. In June 2003, the FTC launched the National Do Not Call

Registry, one of the most widely recognized federal government programs. Since its

inception, consumers have registered more than 58 million telephone numbers – and over

92 percent of these consumers report getting fewer telemarketing calls.

This report also contains the results of the FY 2003 financial audit. The independent audit

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

audits of the FTC’s financial statements, structure, policies, systems, and operations, are

conducted under the requirements of the Chief Financial Officers Act. Current and prior

audit reports are available at the FTC’s Web site at http://www.ftc.gov/oig/oigaudit.htm.

The FTC’s Web site, http://www.ftc.gov, provides comprehensive information on our

activities and access to public legal documents, press releases, educational materials, the

consumer complaint form, and the National Do Not Call Registry. Also, we maintain two

toll-free telephone numbers to report consumer complaints (1-877-FTC-HELP) and identity

theft complaints (1-877-ID-THEFT). I invite readers of this 2003 Performance and

Accountability Report to visit our Web site to learn more about the FTC and its most recent

activities. 

Timothy J. Muris

Chairman
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Performance and Accountability Report

March 2004

 Table of Contents

Page

Message from the Chairman .............. .............. ....... Page i

Part I: Programs and Operations Overview

About the Report .............. .............. .............. . . Part I Page 1

About the FTC .............. .............. .............. .... Part I Page 1

Mission .............. .............. .............. .......... Part I Page 2

Strategic Goals and Objectives .............. .............. ..... Part I Page 4

Organizational Structure .............. .............. ........... Part I Page 5

Key Reporting Components .............. .............. ........ Part I Page 5

Major Program Areas .............. .............. ............. Part I Page 7

Significant Events .............. .............. .............. . Part I Page 14

President’s Management Agenda .............. .............. ... Part I Page 19

Ongoing Challenges .............. .............. ............. Part I Page 29

Future Plans/Objectives .............. .............. .......... Part I Page 31

Management’s Discussion and Analysis .............. ........... Part I Page 33

Part II: Program Performance

Goal1: Prevent Fraud, Deception, and Unfair Business

Practices in the Marketplace .............. ........ Part II Page 1
iii

Objective 1.1: Identify Practices That Cause Consumer Injury ... Part II Page 3

Objective 1.2: Stop Practices That Cause Consumer Injury ..... Part II Page 6

Objective 1.3: Prevent Consumer Injury Through Education .... Part II Page 9

Goal 2: Prevent Anticompetitive Mergers and Other Anticompetitive

Business Practices in the Marketplace ............. Part II Page 12

Objective 2.1: Identify Anticompetitve Mergers and Practices

That Cause Consumer Injury .............. .............. Part II Page 13

Objective 2.2: Stop Anticompetitve Mergers and Practices

Through Law Enforcement .............. .............. . . Part II Page 18

Objective 2.3: Prevent Consumer Injury Through Education ... Part II Page 23

Exhibit 1: Fiscal Year 2003 Performance Measures .............. . . Part II Page 29

Part III: Financial Statements and Auditor’s Report

Message from the Chief Financial Officer .............. .......... Part III Page 1

Statement of Assurance: Federal Managers

Financial Integrity Act .............. .............. ............ Part III Page 2

Office of the Inspector General Opinion Letter .............. ....... Part III Page 6

Limitations of the Financial Statements .............. ........... Part III Page 10

Audit of FTC’s 2003 Principal Statements .............. ......... Part III Page 10

Financial Resources and Results of Operations .............. ..... Part III Page 10

Systems and Control .............. .............. ........... Part III Page 13

Custodial Activity .............. .............. .............. Part III Page 13

Audited Financial Statements .............. .............. ..... Part III Page 14

Notes to the Financial Statements .............. .............. . Part III Page 24
PART I:

PROGRAMS AND OPERATIONS OVERVIEW
Part I Page 1

PART I: PROGRAMS AND OPERATIONS OVERVIEW

About the Report 

This Fiscal Year (FY) 2003 Performance and Accountability Report is the Federal Trade

Commission’s (FTC) first consolidated report prepared under the Reports Consolidation

Act of 2000. The Report is required by 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.

This report combines and enhances the information in the FTC’s FY 2003 Performance

Report, prepared pursuant to the Government Performance and Results Act (GPRA), and

the FY 2003 Audited Financial Statements. Unless otherwise noted, the examples and

statistics used in the Report represent FY 2003 activities, spanning the period of October

1, 2002, to September 30, 2003.

Part I of this report contains introductory material about the FTC’s mission, programs, and

FY 2003 activities, and an overview of the agency’s challenges and performance. Part II

presents the results of the FTC’s 2003 performance in relation to its GPRA strategic plan

as measured by performance targets set for each goal and objective. Part III of the report

sets forth the FTC’s FY 2003 financial statements and the results of the independent audit.

In its first Performance and Accountability Report, the FTC has worked to present

information in a clear and understandable manner. The agency 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.

About the FTC

The FTC is a small, consumer-centered, resultsoriented agency with a large mission. It affects the

lives of consumers every day through, for example, the

receipt of fewer telemarketing calls, lower prescription

drug prices due to the availability of generic drugs, care

labels in clothing, energy labels on appliances, health

warnings on cigarette packages, or competitive prices

for goods as a result of a blocked merger. The FTC is

the only federal agency with broad jurisdiction to

enhance consumer welfare in most sectors of the

economy.
Part I Page 2

As described in detail in this report, the FTC has two major law enforcement bureaus,

Consumer Protection and Competition, supported by the Bureau of Economics and

regional and mission support offices. It 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.

Mission

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, 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 anticompetitive mergers 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.

Five principles guide the development of the FTC’s strategies for consumer protection and

competition activities:
Part I Page 3

C Stop conduct that most threatens consumer welfare, such as anticompetitive

horizontal agreements between competitors and fraudulent and deceptive practices;

C Employ a systematic approach for identifying and addressing serious misconduct,

with special attention to harmful behavior in key economic sectors;

C Apply all elements of the agency’s distinctive portfolio of policy instruments to

address consumer protection and competitionissues– e.g.,investigations, litigation,

rule promulgation, research, studies, workshops, advocacy, and education;

C Improve the institutions and processes by which consumer protection and

competition policies are formulated and applied; and

C Promote competition and the unfettered exchange of accurate, non-deceptive

information through strong law enforcement and focused advocacy.

The two complementary parts of its mission make the FTC the only federal consumer

protection agency with jurisdiction over a wide spectrum of consumer issues. In addition

to enforcement authority, the FTC has unique jurisdiction to gather, analyze, and make

public certain information concerning the nature of competition as it affects U.S.

commerce. It also contributes to the policy deliberations of the Congress, the Executive

Branch, other independent agencies, and state and local governments.

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 nonlitigation instruments, the FTC must make substantial investments in what might be called

“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.
Part I Page 4

Strategic Goals and Objectives

The FTC’s Strategic Plan sets forth the agency’s Vision and Mission for its two goals.

These goals, and their corresponding objectives, are the framework of the activities the

agency pursues during the course of each fiscal year. Performance measures help the

agency assess the impact of these annual activities.

FTC’s Strategic Plan

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.

MISSION To prevent business practices that are anticom petitive 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.

GOAL 1 Prevent fraud, deception, and

unfair business practices in

the marketplace.

OBJECTIVE 1.1 Identify fraud, deception, and

unfair practices that cause the

greatest consum er injury.

OBJECTIVE 1.2 Stop fraud, deception, and

unfair practices through law

enforcement.

OBJECTIVE 1.3 Prevent consumer injury

through education.

GOAL 2 Prevent anticompetitive mergers

and other anticom petitive

business practices in the

marketplace.

OBJECTIVE 2.1 Identify anticompetitive mergers

and practices that cause the

greatest consum er injury.

OBJECTIVE 2.2 Stop anticompetitive mergers and

practices through law

enforcement.

OBJECTIVE 2.3 Prevent consumer injury through

education.
Part I Page 5

Organizational Structure

As the organization chart displayed below shows, the FTC is an agency headed by a fivemember Commission. It has two major mission bureaus, Consumer Protection and

Maintaining Competition, supported by a Bureau of Economics, mission support offices,

and regions. The following two sections describe these organizational components and

their functionality in detail.

Key Reporting Components

The Commission The FTC is an independent agency that reports to Congress on its

actions. The agency is headed by five Commissioners, 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 2003, the

Chairman was Timothy J. Muris, and the Commissioners were Mozelle W.

Thompson, Orson Swindle, Thomas B. Leary, and Pamela Jones Harbour.

Bureau of Competition The Bureau of Competition is the FTC’s antitrust arm. It acts to

prevent business practices that restrain competition, such as illegal monopolization

or anticompetitive mergers. It thereby ensures that the marketplace continues to

provide a full range of product and service options for consumers, which in turn

helps to ensure that consumers have the benefit of low prices and good product

variety. The Bureau’s actions include individual company investigations,
Part I Page 6

administrative and federal court litigation, and consumer and business education.

The Bureau also serves as a research and policy resource on competition issues.

It prepares reports and testimony for Congress, and may present comments on

specific competition issues pending before other agencies. The antitrust laws are

enforced by both the FTC's Bureau of Competition and the Antitrust Division of the

Department of Justice. To prevent duplication of effort, the two agencies consult

before opening any case.

Bureau of Consumer Protection The Bureau of Consumer Protection’s mandate is to

protect consumers against unfair, deceptive, or fraudulent practices. The Bureau

enforces a number of consumer protection laws enacted by Congress, as well as

trade regulation rules issued by the Commission. Its actions include individual

company investigations, law enforcement sweeps coordinated with other law

enforcement agencies, administrative and federal court litigation, and consumerand

business education. The Bureau also contributes to the FTC’s ongoing efforts to

inform Congress and other government entities of the impact that proposed

legislation could have on consumers.

Bureau of Economics The Bureau of Economics helps ensure that the FTC considers

the economic impact of its actions. To achieve this, the Bureau provides economic

analysis and support to antitrust and consumer protection casework and

rulemaking. It also analyzes the impact of economic government regulation on

competition and consumers and provides Congress, the Executive Branch, and the

public with economic analyses of market processes as they relate to antitrust,

consumer protection, and regulation.

Regions The Regions comprise the Northeast, Southeast, East-Central, Midwest, Northwest, Southwest, and Western regions, served by offices in New York, Atlanta,

Cleveland, Chicago, Seattle, Dallas, and Los Angeles and San Francisco, respectively (see http://www.ftc.gov/ro/ro map2.htm). Their program activities are coordinated through the Bureau of Consumer Protection, and to a lesser extent, the

Bureau of Competition. These offices conduct investigations and litigation,

recommend new cases, provide advice to state and local officials on the competitive

implications of proposed actions, provide local outreach services to consumers and

business persons, and coordinate activities with local, state, and regional authorities. The regional offices frequently sponsor conferences for small businesses,

local authorities, and consumer groups.

Mission Support Offices The FTC also includes these offices, which provide support to

the FTC missions: Policy Planning, General Counsel, Secretary, Administrative Law

Judges, Executive Director, Congressional and Public Affairs, and Inspector

General.
Part I Page 7

Major Program Areas

Consumer Protection

The Consumer Protection Mission is advanced by four law enforcement programs –

Advertising Practices, Marketing Practices, Financial Practices, and Enforcement –

augmented by Planning and Information, International Consumer Protection, Consumer

and Business Education, Economic and Consumer Policy Analysis, and Program

Management. Staff in the FTC’s seven regions also support the mission by bringing a

variety of consumer protection cases in the programs and maintaining important contacts

with state Attorneys General and other state and local consumer protection officials.

• Advertising Practices Program This Program enforces the nation’s “Truth-inAdvertising” laws. Whether ads appear on television or radio, in newspapers or

magazines, or on the Internet, these laws require companies to tell the truth and to

back up their claims with reliable, objective evidence. The Program uses a variety

of tools to protect consumers from misleading claims, including law enforcement

actions in federal and administrative courts, guidance to industries, advocating

effective self-regulation by the advertising industry and better ad screening by the

media, and consumer and business education. Working to protect consumers’

health, safety, and economic interests, the Program’s efforts span a broad range

of products and practices.

• Marketing Practices Program This Program fights schemes that use high and low

technology to defraud consumers. The Program studies trends, brings law

enforcement actions, conducts regulatory and policy reviews, and educates

consumers about deceptive practices relating to sales of consumer goods and

services. The priorities of the Program keep pace with fraudulent and deceptive

schemes causing the greatest harm to consumers, including Internet, spam

(unsolicited commercial e-mail), telemarketing, new communications technologies,

investment opportunity, and direct mail fraud.

• Financial Practices Program This Program promotes fairness and accuracy in the

provision of financial services and the use of financial information. Financial

services, including credit and leasing, play important roles in the daily lives of most

Americans, who use credit cards, take out loans, and lease major products

routinely. These services also present challenging consumer protection issues,

such as protecting the privacy of sensitive personal information both online and

offline while at the same time encouraging consumer confidence. The Financial

Practices Program identifies and addresses these issues, so that consumers

continue to benefit from the widespread availability of financial services.

• Enforcement Program This Program focuses on deceptive advertising and

marketing practices, in both English and Spanish language media, that cause
Part I Page 8

consumers economic losses. Targeted practices include deceptive offers of fake

international driver’s permits, government job opportunities, scholarships, weight

loss products and exercise equipment; sales of products involving credence claims

(such as automobile engine treatments); and negative option marketing of buying

clubs and other products. The Program also ensures that companies ordered to

stop deceptive practices do, in fact, stop. Compliance is monitored in traditional as

well as new media. Relief sought includes both civil penalty actions for violations

of administrative orders and actions for civil and criminal contempt for violations of

federal court orders. The Program also enforces a number of laws and rules that

require that consumers receive important information required by law or rule to help

them make accurate comparisons and informed decisions. As an adjunct, the

Program regularly reviews these rules to keep them current. Finally, the Program

oversees class action fairness matters.

• Planning and Information Program This Program develops, analyzes, and

supplies information to target law enforcement and educational efforts, measure the

impact of mission activities, and allocate resources. The Program is responsible for

various projects and functions, including: the Consumer Response Center and

Consumer Information System; Consumer Sentinel; Identity Theft Program; and

Internet Lab; and for administering the core financial, administrative, and litigation

support activities of the Mission.

• International Consumer Protection Program Due to the growing importance of

international matters and increasing international aspects within FTC cases, the

FTC created the International Division of Consumer Protection within the Bureau of

Consumer Protection in FY 2002. This Program addresses consumer protection

issues associated with the globalization of the marketplace. Its focus has been on

combating cross-border fraud and fostering an international e-commerce

environment that promotes consumer confidence.

• Consumer and Business Education Program This Program plans, develops, and

implements creative, practical, plain-language campaigns that are mission-related

and directed to both broad and segmented consumer and industry audiences.

These efforts encourage informed consumer choice and competitive business

practices in the marketplace, and are viewed by the FTC as a cost-effective way to

help minimize consumer injury and obtain compliance with the law. To leverage

expertise and limited resources, the Program partners with businesses, trade

associations, consumer groups, and other government agencies when appropriate,

exhibits at national conferences and conventions, and produces public service

messages for radio, print, and the Internet. A consumer and/or business education

component is included in each major consumer protection law enforcement

initiative.

• Economic and Consumer Policy Analysis Program This Program supports

economic projects and advocacy activities that foster understanding of consumer
Part I Page 9

good markets and consumer protection policy choices. The Program also aims to

ensure that consumer interests are represented before various governmental and

self-regulatory bodies dealing with consumer-related issues.

• Program Management This Program is responsible for the overall management

of the Consumer Protection Mission and the accomplishment of its goal and

objectives. The goal of the mission is to prevent fraud, deception, and unfair

business practices in the marketplace. Under the mission’s strategic plan,

resources are devoted to three broad objectives: (1) monitoring the marketplace to

identify illegal practices and emerging “frontier” issues and educate FTC staff about

them; (2) stopping fraud, deception and unfair practices through law enforcement,

regulation, and guidelines, and by encouraging industry self-regulation; and (3)

educating consumers and businesses. 

Maintaining Competition Mission

The Maintaining Competition Mission seeks to prevent anticompetitive mergers and to

ensure that the marketplace is free from anticompetitive business practices. The mission

is carried out through six law enforcement-related programs – the Premerger Notification

Program, the Merger and Joint Venture Enforcement Program, the Merger and Joint

Venture Compliance Program, the Nonmerger Enforcement Program, the Nonmerger

Compliance Program, and the Antitrust Policy Program. In each program, staff seek to

protect consumers’ interests by preventing anticompetitive conduct or mergers without

interfering with businesses’ legitimate activities.

• Premerger Notification Program Mergers and joint ventures (for convenience,

“mergers”) can generate efficiencies, and most mergers are either procompetitive

or competitively neutral. Mergers that are anticompetitive, however, can raise

consumer prices by millions of dollars every year. Such mergers can also

significantly diminish product quality and output, consumer choice, and innovation.

To find anticompetitive mergers, the FTC relies primarily on the premerger

notification required by the Hart-Scott-Rodino (HSR) Act. To distinguish between

mergers that threaten free markets and those likely to promote them, the FTC uses

sophisticated economic analysis and thorough factual investigation.

• Merger and Joint Venture Enforcement Program This Program works to prevent

consumer harm that may result from anticompetitive mergers. The FTC has acted

to protect consumers against potential effects, such as diminished product quality

and output, consumer choice, and innovation, in any market in which it has reason

to believe a merger is likely to substantially lessen competition, including highpriority areas for consumers: health care, pharmaceuticals, energy, defense,

information and technology, and consumer goods and services. In some instances,

it is possible to arrive at narrowly tailored relief, such as partial divestiture, that

prevents injury to competition but allows the overall transaction to proceed. In other
Part I Page 10

instances, this cannot be accomplished without preventing the merger entirely or,

where this is not possible, undoing it. 

• Merger and Joint Venture Compliance Program Commission orders issued

under this Program, whether the products of negotiation or litigation, can only

achieve the intended results of maintaining or restoring competition if they are welldesigned, made effective in a timely fashion, and faithfully complied with once they

become effective. The Program deals with all three of these interrelated issues,

sharing the first two concerns with the Merger Enforcement Program and bearing

primary responsibility for the third.

• Nonmerger Enforcement Program This Program encompass all of the

Maintaining Competition Mission’s enforcement jurisdiction outside of the merger

programs. A wide variety of business practices may harm consumers, allowing

firms to raise prices beyond competitive levels, or to reduce output, quality, services,

innovation, or choice for consumers. The nonmerger actions of the FTC may be

divided into three broad categories of antitrust violations: horizontal restraints,

distributional restraints, and single firm violations. Identifying and proving these

types of violations requires the application of sophisticated economic analysis and

thorough factual investigation to distinguish between conduct that threatens the

operation of free markets and conduct that promotes and advances their operation.

• Nonmerger Compliance Program As with merger enforcement, the orders

obtained through the FTC’s nonmerger enforcement efforts must be both welldesigned and faithfully observed in order to produce the desired restoration or

preservation of competition. The appropriate design of orders calls for close

consultation between enforcement and compliance staff. Divestiture relief will

seldom be involved for anticompetitive conduct in nonmerger matters. Instead, the

most significant order provisions are generally prohibitory. Thus, while the

timeliness of relief is still a significant issue, ensuring it is more often a matter of the

speed with which the order was obtained after violations were detected than of postorder processes.

• Antitrust Policy Analysis Program This Program provides FTC and other policy

makers with information to assess the effects of competition policy. Economic

research in this Program is designed to improve FTC’s understanding of those

market situations where antitrust activity would result in a more competitive market.

The Program also aims to ensure that consumer interests are represented before

variousgovernmental and self-regulatory bodies addressing market and competition

issues.

• Other Direct Mission Resources The Maintaining Competition Mission includes

several other functions that directly support the law enforcement, including:

program planning, evaluation, and review; competition advocacy; clearance
Part I Page 11

procedures with the Department of Justice; state and international liaison; and

administering the core financial, administrative, and litigation support activities of the

Mission.

Mission Support

Mission Support consists of management and support programs within the FTC that

address the evolving needs of the direct Missions’ challenges. Mission Support programs

develop and implement new, more efficient products and services to meet the FTC’s

challenges.

• Commissioners The Commissioners are responsible for ensuring that the FTC

effectively and efficiently executes its congressionally mandated responsibilities.

They formulate Commission policy, which guides and directs the staff’s work. They

also allocate the resources required to implement courses of action and monitor the

FTC’s progress in accomplishing stated goals.

• Policy Planning Task Force The Policy Planning Task Force is responsible for

developing recommendations on a wide array of issues. Its staff study, obtain

public input about, report on, and analyze changes in the economy, the competitive

process, consumer and competition issues, and other areas of the law related to the

FTC’s enforcement responsibilities. It also coordinates the advocacy activities of

the FTC and, upon request, provides assistance in the development of cases that

involve novel or complex legal issues. The Task Force researches and explores the

most effective and appropriate means by which the FTC may approach competition

and consumer protection policy issues, while at the same time providing costeffective services to those subject to the FTC’s enforcement orders and policies.

• Office of the General Counsel The General Counsel is the FTC's chief legal

officer and adviser. The Office's major functions are representing the FTC in court

and providing legal counsel to the Commission, the operating bureaus, and other

offices. In its litigating capacity, the Office defends actions seeking judicial review

of FTC orders and trade regulation rules, handles appeals of FTC actions seeking

preliminary and permanent injunctive relief, and assists the bureaus in actions for

injunctive relief in district court. In its counseling capacity, the Office provides

confidential legal guidance to the FTC on a wide range of procedural and

substantive issues in adjudicative matters. The Office also assists the FTC in

developing policy recommendations on a wide array of issues, including competition

policy in connection with innovation and intellectual property, deregulation and

markets in transition, and Internet issues. It also advises agency staff on personnel,

labor-management relations, equal employment opportunity, procurement law, and

appropriations law matters.
Part I Page 12

• Office of the Secretary This Office is the custodian of critical FTC documents and

records. Its major functions are to implement the FTC's voting and other decisionmaking procedures and create official records of Commission decisions; to review,

validate, and serve all official documents; to receive and process all filings before

the Commission; and to support the FTC’s law enforcement efforts by designing

and implementing agency-wide systems for storing, accessing, and archiving the

agency’s official records. The Office is also responsible for submitting and

maintaining documents posted to the Formal Actions portion of the agency’s Web

site. In addition, the Office provides guidance on procedural issues; maintains and,

as necessary, revises the Operating Manual; publishes Federal Register notices,

as appropriate, and volumes of FTC Decisions; and provides historical research and

analysis to the Commission and to the staff. The Office is also responsible for the

efficient processing – from receipt to completed response – of letters received from

Members of Congress each year.

• Office of Administrative Law Judges This Office performs the initial adjudicative

fact-finding in FTC administrative complaint proceedings, guided by statutes,

precedent, and rules of practice. The administrative law judge assigned to handle

each complaint issued by the Commission holds pre-hearing conferences, resolves

discovery, evidentiary, and procedural disputes, decides motions for summary

decision, and conducts the full adversarial evidentiary hearings. The judge's initial

decision sets out relevant and material findings of fact with record citation, explains

the correct legal standard, and applies the law to the facts. This Office also

conducts rulemaking proceedings for the FTC.

• Office of the Executive Director This Office serves as the managerial and

administrative arm of the FTC, with responsibility for the overall operation of the

agency. The Office manages agency-wide projects on a variety of matters, including

agency reauthorization and annual appropriations and budgets. It works closely with

the bureaus on strategic planning and assessing the management and resource

implications of any proposed action. The Equal Employment Opportunity Office is

located in the Office of Executive Director, as well as the following: 

• Financial Management Office This Office is centrally responsible for

agency-wide budget, acquisition, and financial accounting services. It

accomplishes these critical responsibilities through three branches – Budget,

Acquisitions, and Finance. The Office liaisons with other federal agencies

having government-widefinancialmanagementresponsibilities, and ensures

that the FTC complies with various financial management regulations and

statutes.

• Human Resources Management Office This Office is responsible for

enabling the FTC to accomplish its mission through workforce planning,

recruitment, employee development, retention, compensation, performance
Part I Page 13

management programs, and the Human Capital Initiatives of the President’s

Management Agenda.

• Administrative Services Office This Office is an integral component of the

FTC’s support service network. It is responsible for providing appropriate

space, security. and support services to allow the agency to accomplish its

missions. The central provision and coordination of those services ensures

that other agency staff can focus on law enforcement activities. 

• Information and Technology Management Office This Office is

responsible for the FTC’s technological infrastructure, direct mission support

applications and services, and related office systems. The overall mission

of the Office is to support and improve the productivity and effectiveness of

the FTC through the effective use of those information resources.

• Office of Legislative and Public Affairs This Office is responsible for proactively

informing the news media, as well as the public at large, about the activities of the

FTC. Additionally, the Office responds to media inquiries about FTC actions and

policy. In its mission of congressional service, the Office develops, coordinates, and

executes a consolidated program of legislative advocacy for the FTC; plans and

implements liaison activities with Congress; reviews and/or drafts legislation on

issues within the FTC’s jurisdiction; tracks legislation, and keeps agency officials

advised on matters affecting the FTC; and briefs congressional committee staff on

substantive issues of legislation concerning the agency and the implementation of

such legislation. In serving as liaison between the FTC and the media, the Office

produces news releases announcing official actions of theFTC, provides assistance

to media involved in covering FTC activities, and ensures that FTC releases,

supporting documents, and consumer education materials are disseminated as well

as available to the media and the public on the Internet.

• Office of Inspector General The Office of Inspector General was created in FY

1989 in accordance with the Inspector General’s Act of 1978, as amended, for the

purpose of preventing and detecting fraud, waste, and abuse in agency programs

and operations. The Office meets its mission responsibilities by conducting

independent audits and investigations. The inspector general is charged with

keeping both the agency head and Congress fully and currently informed about

problems and deficiencies relating to the administration of FTC programs.
Part I Page 14

Generic Drugs: 

Saving Money at the Pharmacy

http://www.ftc.gov/bcp/conline/pubs/health/generic.pdf

Significant Events

The FTC has a major impact on consumers and the marketplace, and its achievements

demonstrate a significant return-on-investment for consumers and businesses alike.

Significant events and ongoing activities of FY 2003 are described below.

C Do Not Call – Stopping Unwanted Telemarketing Calls. At a Rose Garden

ceremony in June 2003, the President announced the opening of the FTC’s

National Do Not Call Registry. Through this registry, subsequently adopted by the

Federal Communications Commission, consumers can elect not to receive most

telephone solicitations from telemarketers. Telemarketers are

required to scrub their calling lists to remove any telephone numbers

included in the registry. Registration is free to consumers; the

registry will be paid for by fees collected from telemarketers that use

the registry. Through March 2004, the registry logged more than 58

million telephone numbers. In the months and years ahead, the

FTC will monitor compliance by telemarketers and bring any needed

enforcement actions.

C Redress Orders – Money Ordered to Be Returned to Consumers. The FTC

continued to attack fraud and deception in FY 2003. The FTC filed 87 complaints

in federal district court, obtained 98 federal court judgments ordering $873 million

in consumer redress, and obtained 19 orders assessing $2.8 million in civil

penalties. The total redress ordered greatly exceeds the aggregate consumer

redress ordered in FTC cases in FY 2002 ($155 million) and FY 2001 ($252 million)

combined. 

C Pharmaceuticals – Protecting the Availability of Lower-Cost Prescription

Drugs. The FTC has engaged in a host of activities to ensure the prompt

availability of lower-cost

prescription drugs to

consumers. For example,

the FTC obtaine d

settlements to prevent

anticompetitive effects of

three major pharmaceutical

industry mergers, including

the $60 billion combination of Pfizer Inc., the largest pharmaceutical company in the

world, and Pharmacia Corporation, in which the FTC’s action protected competition

in nine separate and wide-ranging product markets. The FTC also has brought law

enforcement actions to prevent conduct by branded drug manufacturers to delay or

obstruct the entry of lower-cost generic drugs on the market, notably including a

landmark consent agreement with Bristol-Myers Squibb to resolve charges that the

company abused regulatory procedures to interfere with entry of generic
Part I Page 15

competition for two anti-cancer drugs and an anti-anxiety agent. The FTC has also

used non-enforcement tools to address related issues, for example, by providing

comments to Congress and the Food and Drug Administration on the potential for

misusing Hatch-Waxman Act procedures governing the entry of generic drugs,

based on the findings of an in-depth FTC study. In June 2003, the FDA adopted a

new rule, incorporating certain FTC recommendations, that promotes the timely

approval of low-cost generic drug alternatives. In December 2003, Congress

passed the Medicare Prescription Drug Improvement and Modernization Act, which

made changes in the FDA’s final rule, consistent with the findings of the FTC study.

C Home Mortgages – Stopping Deceptive or Abusive Lending Practices. The

FTC continued to attack deceptive or abusive lending practices targeted toward the

most vulnerable groups in the population. In May 2003, a federal court finalized a

settlement with The Associates, now owned by Citigroup, Inc., to resolve FTC

charges of deceptive subprime mortgage lending practices. The settlement is

expected to provide $215 million in redress to approximately 850,000 homeowners.

A related class action settlement is expected to yield an additional $25 million. 

The Associates is just one in a series of cases in which the FTC has pursued such

pernicious practices. The FTC also challenged the lending practices of First

Alliance Mortgage Company (FAMCO). In November 2002, the FTC received its

first redress payment in FAMCO. Those monies were distributed to nearly 28,000

consumers within 45 days of receipt. Currently, the FTC is preparing a second

distribution to borrowers. Ultimately, the FTC expects to distribute at least $63

million of redress in FAMCO. 

Other cases include the FTC’s ongoing litigation against Capital City Mortgage

Corp. and a proposed agreement with Fairbanks Capital Holding Corp. The

proposed Fairbanks agreement, announced in November 2003, settles allegations

of various unfair, deceptive, and illegal practices in the servicing of subprime

mortgage loans.

C Spam – Protecting E-Mail Through Research, Education, and Law

Enforcement. In April 2003, the FTC conducted a three-day public forum that

examined the proliferation of, and potential solutions to, spam (unsolicited

commercial e-mail) and released a

report that found that 84.5 percent of

examined spam contained elements of

obvious deception or sold an illegitimate

product or service. The FTC has

targeted deceptive spam for aggressive

law enforcement actions, including one in which an innocent-appearing spam

message led consumers, including children, to sexually explicit material. To

address spam more broadly, the FTC has created a Federal/State Spam Task

Force with state and federal law enforcement partners. This Task Force provides
Part I Page 16

a forum for members to address the interstate and international nature of spam and

the latest spamming technology, spammer ploys, and investigational techniques.

The FTC also educated consumers and businesses about steps they can take to

reduce the amount of spam they receive. 

C Internet – Protecting E-Commerce. The Internet holds great promise as an

efficient marketplace for the sale of goods and services to

consumers worldwide, but it also has presented some new

competition and consumer protection issues. In response,

the FTC has brought more than 300 cases to help keep ecommerce free from fraud, deception, and unfair practices.

During FY 2003, the FTC brought 58 cases involving

fraudulent or deceptive marketing practices related to the Internet. The agency also

has formed an Internet Task Force to explore these issues. So far, the Task Force

has analyzed state regulations that may restrict the entry of new Internet

competitors and has hosted public workshops on potential anticompetitive barriers

to e-commerce.

C Energy – Preventing Anticompetitive Gasoline Prices. The energy market is a

vital sector of the U.S. economy. In FY 2003, the FTC issued a complaint against

the Union Oil Company of California that, according to the complaint, could save

consumers hundreds of millions of dollars per year in gasoline purchases. In

November 2003, an FTC Administrative Law Judge dismissed the complaint. This

matter is currently on appeal before the Commission. The FTC also continued

merger enforcement activity in energy markets, including a consent order designed

to preserve competition in the market for the delivery of natural gas to the Kansas

City area following the sale of a major Midwestern natural gas pipeline.

C Intellectual Property (IP) – Keeping Pace with Market Innovations. The FTC

recognizes the importance of applying the most current knowledge about evolving

markets to its enforcement policies. For example, the FTC and the Department of

Justice concluded a series of hearings on “Competition and Intellectual Property

Law and Policy in the Knowledge-Based Economy” responding to the growth of the

knowledge-based economy, and to harmonize requirements under both IP and

antitrust law to fulfill their common goal of promoting innovation. These hearings,

which took place over 24 days and involved more than 300 panelists, formed the

basis for an FTC report issued in October 2003, entitled “To Promote Innovation:

The Proper Balance of Competition and Patent Law and Policy.” This report offers

recommendations for the patent system and describes the FTC’s plans and

proposals to facilitate increased communication between antitrust agencies and

patent institutions.

C Health Care – Protecting Consumers from Anticompetitive Medical Fees.

During FY 2003, the FTC settled cases with eight groups of physicians for allegedly
Part I Page 17

colluding to raise consumers’ costs and issued an administrative complaint against

another group. These enforcement actions put a stop to, or seek to stop, allegedly

collusive conduct that harms employers, individual patients, and health plans by

depriving them of the benefits of competition in the purchase of physician services.

In addition, the FTC challenged for the first time a provider organization engaged

in collusive conduct in providing hospital services. Also in FY 2003, the FTC,

working with the Department of Justice, completed nearly 30 days of hearings over

seven months to explore developments in the dynamic health care market. The

hearings focused on the specific challenges and complications involved in applying

competition law and policy to health care, as well as a wide range of more specific

health care and competition law and policy issues, such as hospital mergers, the

significance of non-profit status, vertical integration, quality and efficiencies, the

boundaries of the state action and Noerr-Pennington doctrines, monopsony power,

the adequacy of existing remedies for anticompetitive conduct, and the implications

of the FTC's consumer protection mandate with regard to the performance of the

health care financing and delivery markets.

C Law Enforcement Sweeps. The FTC leveraged its resources through coordinated

actions with other law enforcement agencies against specific types of fraud and

deception. In FY 2003, the FTC and more than 100 law enforcement partners

targeted Internet scams, charitable fundraising scams, Internet auction fraud, and

international drivers permit scams. These sweeps resulted in nearly 175 law

enforcement actions, including 30 FTC cases.

C Consumer Privacy and Security. Consumer complaints

and inquiries to the FTC regarding identity theft have risen

from 36,000 in FY 2000 to 321,000 in FY 2003. Identity

theft occurs when someone uses a consumer’s personal

information such as name, Social Security number, credit

card number, or other identifying information without

permission, to commit fraud or other crimes. The identity

theft reports and other information collected from these

calls are made available through Consumer Sentinel, a

secure Web site, to more than 940 of the FTC’s law enforcement partners. To help

consumers avoid or recover from identity theft, the FTC has distributed more than

1.3 million print copies of the FTC brochure “Identity Theft: When Bad Things

Happen to Your Good Name” and recorded more than 1.4 million “inquiries” to the

electronic version of the brochure on the FTC’s Web site. To assist consumers

further, the FTC has developed a universal ID Theft Affidavit – a standard form

accepted by all three major credit reporting agencies and other creditors from

victims seeking to report fraudulent accounts opened in their names. The brochure

and the affidavit are also available in Spanish. In May 2003, after encouragement

from the FTC, the three major credit reporting agencies implemented a one-call

system enabling consumers to secure copies of their credit reports and have fraud

alerts placed on their files at each of the credit reporting agencies.
Part I Page 18

The FTC also brings law enforcement actions to protect consumer privacy. In FY

2003, the agency settled charges that Microsoft Corporation had misrepresented

the measures it used to collect and maintain the security of personal information

collected through its Passport Web services. Since October 2002, the FTC has

announced settlements with three companies that allegedly collected extensive

personal information from millions of high school students and then sold that

information to commercial marketers, despite promising the information would be

shared only with colleges, universities, and other education-related service

providers. 

C Weight Loss Advertising and Products. An FY 2002 FTC staff report, WeightLoss Advertising: An Analysis of Current Trends, concluded that the use of false or

misleading claims is rampant in weight-loss product advertising. To follow up, the

FTC held a workshop in November 2002 in which participants – scientific and

medical experts, industry members, and representativesof media organizations and

outlets – discussed the current science of weight loss, deceptive weight loss

advertising, and possible ways for the media to more effectively screen ads. Over

the last decade, the FTC has brought more than 100 cases

challenging misleading claims for all types of weight loss

products, including over-the-counter supplements,

commercial weight loss centers, weight loss devices, and

exercise equipment. 
Part I Page 19

President’s Management Agenda

In 2001, the Administration announced a strategy for improving the management of the

federal government called the President’s Management Agenda (PMA). It focuses on five

areas of management weakness across the government for which improvements and the

most progress can be made. The FTC is committed to this effort and is managing its

resources effectively and achieving immediate, concrete, and measurable results in each

of the five initiative areas of the PMA: human capital; competitive sourcing; e-government;

financial management; and integration of budget and performance. 

Demands on the agency have grown dramatically over the past decade as commerce has

become increasingly electronic and the economy has become high-tech and global.

During this period, the agency has found new ways to meet these growing demands and

reach out to more consumers and businesses without an appreciable addition of

personnel. To address these issues, the FTC has been engaged in long-term, concerted

efforts to work smarter and more effectively. The FTC continues to work to improve

management and program performance. The agency has a solid record of assessment,

realignment, innovation, and improvement. There are several efforts underway to address,

among other areas, recruitment and training, performance and costs, and reporting and

systems.

Initiative: Human Capital Management

C Knowledge Management The FTC is engaged in a systematic program to improve

staff training of all types – professional, managerial, technical, and administrative.

Training is a key component to working smarter and improving productivity. It is

also critical in managing FTC attrition, especially in the ranks of lawyers and

economists, where career training and professional development are valued highly.

New and innovative training programs have resulted in increased interest and

participation from all segments of the workforce. For the past four years, the FTC’s

training and development program has been guided by its Training Council,

composed of representatives throughout the agency. In FY 2003, the FTC

implemented its first e-learning program. E-learning offers an array of self-directed

training opportunities in all mission-critical areas as well as personal and

professional areas. A sampling of the areas covered by e-learning includes

management effectiveness, leadership, team building, finance, accounting,

communications, project management, strategic planning, administrative support,

and a wide range of information technology classes.

C Leadership As a key part of its management improvement efforts, the FTC

implemented several training programs. The Manager Series is the cornerstone of

the agency’s management development and is mandatory for all supervisors and

managers. The program focuses on employee relations, performance

management, and labor relations. The Leadership Series introduces participants
Part I Page 20

to contemporary issues and concepts for today’s manager. The Best Practices in

Management and Leadership Series provides participants with current theory and

best practice approaches to important areas of human resource management. In

FY 2003, the FTC offered Performance Management: Ideas into Action, the final

scheduled course on the agency's revised performance management program.

This program emphasizes a comprehensive approach to performance

management, from establishing performance plans through preparing performance

evaluations. The course is based on a five-step performance management model

and matches each step with the FTC's performance policy. Over 100 supervisors

and managers attended the training course.

C Performance Management During the past year, the FTC completed a study of

its performance management system. The study involved four steps: collecting

information from inside and outside the FTC; identifying issues and possible

solutions; obtaining input from FTC managers and employees on the identified

solutions; and preparing a report with findings and recommendations. The final

report recommended that the current system be retained with minor improvements.

The study also served to focus managers on good performance management. As

a result of manager input, guidelines were issued in FY 2003 to clarify and

strengthen performance elements and standards for positions with the largest

population of employees. Management-wide training on the updated performance

management policy is continuing (see Leadership section above).

C Strategic Alignment The FTC continues to examine a range of management and

support positions to determine which ones can be eliminated to put more staff at the

front lines of the agency’s missions. As part of this effort, in the late 1990s, the

agency reduced by 24 percent the Office of the Executive Director, the agency’s

management and administrative organization. The FTCmoved some administrative

positions to other organizations where the work could be performed more efficiently,

but eliminated most of these positions to free positions for attorneys, investigators,

and others at the front lines of the agency’s consumer protection and competition

missions. These examinations are ongoing.

C Core Competencies In the rapidly growing electronic and global marketplace, the

FTC needs professionals with specialized skills to investigate complex economic

issues and apply sophisticated legal precedents to antitrust and consumer

protection litigation. Attorneys account for approximately 53 percent of the FTC’s

permanent workforce, and Ph.D. economists account for an additional 8 percent.

These professionals are supported by staff with technical skills and expertise, such

as paralegals, data analysts, and computer specialists, and a core complement of

staff with management and operational skills. The FTC is working to recruit and

retain highly qualified individuals by offering hiring and relocation bonuses, moving

expenses, high starting salaries, and large cash awards, as well as non-monetary

benefits such as time off, training and development opportunities, and assignments
Part I Page 21

to high-profile cases. The agency is identifying core competencies to recruit

applicants with specific knowledge and skills needed to support its mission,

particularly in the legal area.

C Continuing Assessment of Support Workforce Across the FTC, a number of

support staff will retire over the next five years, and the development of new

technology will allow for accomplishment of more administrative tasks electronically.

The agency will transfer these support positions to the front lines of the missions,

either in law enforcement or consumer education. The FTC is focusing on training

and employee development for staff who are not yet ready to retire, but who are

performing tasks that could be automated. The agency is also analyzing statistics

for potential retirements among the supervisory and management ranks and

developing strategies for knowledge management and succession.

C Workforce Alignment The FTC launched a study of legal support positions at the

agency. The study focuses on paralegals, federal trade investigators, merger

analysts, and similar positions that provide direct support to the attorneys

throughout the agency. The study will look at which and how many different

positions provide direct legal support, the grade levels and career ladders of the

jobs, and the real and perceived differences among jobs with different

classifications and titles. Results of the study will be used to assess the adequacy

and effectiveness of current legal support occupational groupings, to construct

potential legal support program improvements, and to develop recruitment

strategies for legal support positions. 

C Workforce Mix In 1996, the agency began an Honors Paralegal Program to relieve

attorneys of the routine tasks in investigations and litigation, and to allow them to

focus on complex matters of policy, analysis, and strategy. Honors Paralegals are

recent college graduates, hired at the GS-7 level under expedited procedures of the

Outstanding Scholar Program, and they generally work for the agency for one to

three years under term appointments before moving on to graduate or professional

school. The Bureaus of Competition and Consumer Protection and the Office of the

General Counsel participate in the program, which has approximately 50 Honors

Paralegals at any given time. The Bureau of Economics established a similar

program, focusing on recent college graduates with degrees in economics to

provide technical support to Ph.D. economists.

C Delayering The agency also examines program decision processes to eliminate

layers of review. For example, several years ago, the Bureau of Competition

removed a level of management from its reporting structure, which streamlined

decision making on recommendations to the Commission concerning investigations

and litigation. The Bureau of Consumer Protection also streamlined review to

ensure that actions were considered at an early stage, thus eliminating unnecessary

work on investigations and projects. The Office of General Counsel capped the
Part I Page 22

number of reviewers’ signatures on official memoranda at two, speeding

recommendations to the Commission and other agency actions. The General

Counsel also delegated approval or decision-making authority to lower-level

managers on several types of matters. 

C Restructuring In 1999, the FTC restructured its regional office system to use

positions more efficiently. The agency closed two offices (Boston and Denver)

located in areas of the country with a relatively low incidence of consumer fraud.

The agency also consolidated regional competition mission positions into three

offices (New York, San Francisco, and Seattle) so they could handle resourceintensive merger cases more effectively. Previously, the FTC had also consolidated

regional consumer contact functions into the FTC’s centralized Consumer

Response Center (CRC). The CRC now offers two toll-free telephone numbers that

allow consumers from across the country to contact the FTC with fraud and identity

theft complaints and requests for consumer education materials. 

Initiative: Competitive Sourcing

• Federal Activities Inventory Reform (FAIR) Act The FTC identified 53

commercial full-time equivalent (FTE) positions in its 2003 FAIR Act inventory

(under “Special Notices” http://www.ftc.gov/ftc/who.htm). In the past two years, the

FTC has converted 15 percent of its total 2000 baseline year’s commercial FTE

inventory to commercial positions. In 2004, the agency will commence a

comprehensive examination of its workforce functions to look for opportunities to

compete commercial positions. One area of focus will be on several functions

currently performed by clerical and administrative staff who will retire over the next

five years.

• Reimbursable Support Service Arrangements The FTC streamlined clerical

support, administrative, and technical functions, and replaced positions with

reimbursable support service arrangements with other federal agencies. The areas

in which these changes occurred include significant agency services such as

payroll/personnel, accounting/payment system operations, health unit, retirement

counseling, and the transit subsidy program.

• Performance-Based Service Contracting The FTC exceeded the Office of

Management and Budget’s 20-percent target of using performance-based contracts

for services. The agency’s largest service contracts are performance-based,

including the National Do Not Call Registry, Consumer Response Center, Computer

Help Desk Services, and Consumer Redress Fund Administration.
Part I Page 23

Initiative: Expanding e-Government

• National Do Not Call Registry The FTC launched the National Do Not Call

Registry on June 27, 2003, to make it easier and more efficient for consumers to

stop getting telemarketing calls they do not want. Consumers can register online or

by calling a toll-free number. Registration is free and is available in both English and

Spanish. Consumers are adding their telephone numbers to the National Do Not

Call Registry at a vigorous pace. From July to March 2004, more than 58 million

telephone numbers were logged into the registry. The effort also demonstrates how

agencies of the federal and state governments can work together, each using their

particular jurisdiction and expertise, to protect U.S. consumers.

• e-Government The FTC has been a leader in the use of technology and the

Internet to inform citizens of its mission without having to enlarge its workforce

significantly. Starting in the mid 1990s, the FTC began building interlinked public

consumer protection Web sites, many in connection with other domestic or foreign

law enforcement agencies, to educate consumers and to collect and analyze data

on a broad range of consumer protection issues, including high-tech fraud and

identity theft. In June 2003, the FTC premiered a newly designed http://www.ftc.gov

Web site. The new design reflects a year-long effort of an agency-wide Web design

working group. The new site provides better navigation, a faster load time, and a

cleaner look. This is the first phase of a complete Web site redesign, which will be

implemented over the next several months. 

• Integrated One-Stop Systems The FTC Web site, provides a wide array of

information about the actions and operations of the agency, and direct access to

consumer and business education information and publications. In the last three

years, electronic distribution of education materials has surpassed print distribution.

The site also permits citizens to file online complaints about consumer fraud and

identity theft. These complaints are used to target the agency’s law enforcement

and education efforts. Consumers currently can access the Web site (including the

complaint form) in four languages. Through the

http://www. consumer.gov/sentinel link, 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 most; the number of identity theft

complaints, by state; the types of identity theft most frequently reported; and how

to spot and avoid fraud and deception online and off. The FTC Web site also has

a direct link to the government-wide public site, http://www.firstgov.gov, and to the

Small Business Administration’s (SBA) one-stop services: the U.S. Business

Advisor (http://www.business.gov) and SBA’s online business guide to legal and

regulatory information (http://www.businesslaw.gov).
Part I Page 24

• Citizen Information Access The FTC for many years has recognized that the

complexity of the federal government makes it difficult for citizens to know where to

go for information and assistance on consumer issues. In 1997, the FTC led a

group of five agencies with consumer protection responsibilities to create a Web

site, http://www.consumer.gov, as a one-stop link to a broad range of federal

consumer information resources available online.

Consumer.gov links to documents located on the Web sites

of its participating federal agencies – which have grown

from the original five to 180 agencies. This site has

become the portal for interagency consumer information

that the federal government provides to the public through http://www.firstgov.gov..

• Cross-Agency Information Sharing The FTC Consumer Response Center

receives consumer complaints and inquiries through two toll-free telephone lines

and postal and electronic mail. Information from these complaints and inquiries is

collected in a database, which contains nearly 3.2 million entries. The FTC also

developed and hosts a secure Web site, Consumer Sentinel, that makes the

consumer complaints accessible to other federal,

state, local, and international law enforcement

partners. The more than one million fraud

complaints in the database are accessible to more

than 940 law enforcement partners (e.g., the FBI,

the Postal Inspection Service, 50 State Attorneys

General), and the nearly 500,000 identity theft

complaints are accessible to more than 940

domestic partners (e.g., the Secret Service, Social

Security Administration Inspector General, U.S.

Attorney Offices). Collecting this information in one

database and sharing it electronically with other agencies reduces redundancy and

helps the law enforcement community identify general trends in consumer issues,

track the illegal activities of specific businesses, and coordinate investigations and

litigation. In February 2003, Consumer Sentinel received an Excellence.Gov finalist

award from the Industry Advisory Council’s E-Gov Shared Interest Group, in

partnership with the Federal CIO Council.

• Electronic Filing The FTC is close to implementing a process that will permit

electronic filing of required information about proposed mergers and acquisitions

under the Hart-Scott-Rodino Premerger Notification Act. This system will be shared

with the Department of Justice (DOJ) Antitrust Division. A single integrated system

is more efficient for business filers as well as taxpayers. Business filers need only

file at a single location and the taxpayer does not need to support two redundant

systems. The FTC has managed the development and deployment of this

integrated bi-agency system and will operate this system on behalf of the FTC and

DOJ. Electronic options will allow businesses to select the submission method that
Part I Page 25

is most effective and efficient for them, and will reduce the government’s

administrative cost of reviewing and analyzing the filings.

• Reducing Litigation Burden The growing use of sophisticated electronic systems

and software in litigation requires the FTC to keep its technology current to remain

competitive in the courtroom. The FTC has developed the ability to interface with

computerized document production systems that allow law firms to provide

documents and information to the agency more efficiently. In addition, the agency

is employing state-of-the-art computerized systems that support agency attorneys’

litigation preparation and courtroom presentations.

• Developing e-Procurement The FTC’s planned and ongoing procurement

enhancements are designed around the Integrated Acquisition Environment (IAE),

one of the Administration’s e-government initiatives. As requirements arise, the

FTC uses the government-wide FED BIZ OPPS Web site. This site provides a

single location at which interested vendors can view and, if interested, respond to

government requirements for goods and services. The FTC also converted to the

Business Process Network (BPN) Web site, an expansion of the Central Contract

Registration Web site. This site provides Federal agencies with a single source for

vendor contact and payment information and requires that each vendor maintain all

appropriate information on a current basis. Additionally, the FTC plans to register

in BPN for intra-governmental transactions. The FTC is also preparing for the

implementation of the new Federal Procurement Data System - Next Generation,

a central point for consolidated collection and access of statistical and management

information related to government acquisitions. 

• Information Requirements The FTC has initiated an agency-wide management

information requirements project and related Intranet site to provide managers with

ready information to support data gathering and decision making. An effort is

underway to develop standard data definitions for use across agency applications.

An important goal of the project is to provide timely, accurate, and useful standard

reports and ad hoc reporting capabilities. 

• Improving Productivity An analysis of agency information requirements revealed

that efficient and effective document management is the primary need. In

response, the FTC implemented a comprehensive document management system

with the fundamental goal of streamlining the process of sending documents and

other information through any electronic channel (e.g., Internet, database, e-mail),

in any spoken language, regardless of its original data format. The cycle of

creating, editing, approving, publishing, and removing outdated content traditionally

has been filled with impediments. The agency is continuing to re-engineer basic

work processes to enable targeted, accurate interchange of electronic information

without technological barriers. Users will be able to generate, publish, and find

information with virtually no learning curve or technical assistance. By establishing
Part I Page 26

consistent work flows and templates that cross organizational boundaries, the

system will ensure that information from across the agency can be readily shared,

re-used, re-combined, and re-purposed to a variety of uses.

Initiative: Improved Financial Performance

• Audited Financial Statements Before there was a statutorily mandated

requirement, the FTC prepared Audited Financial Statements in a timely manner

that complied with government-wide accounting standards for six consecutive years

(1997 - 2002). Each year, the agency has received an unqualified opinion with no

material weaknesses. The agency received its seventh unqualified opinion in 2003.

• Accurate and Timely Financial Information The FTC maintains a small, highly

skilled, in-house financial staff and contracts with the Department of Interior’s

National Business Center (NBC) for more routine accounting, payroll, personnel,

and voucher payment services. The result is the best use of agency resources and

a significant improvement in the accuracy and timeliness of financial data available

to agency managers. The FTC meets all Treasury, OMB, and agency financial

reporting deadlines.

• Federal Accounting and Transaction Standards The FTC is in general

compliance with all federal accounting principles and standards. The FTC’s

accounting system conforms in all material respects with the principles, standards,

and related requirements specified in the Federal Financial Management

Improvement Act of 1996. The Joint Financial Management Improvement Program

has evaluated and qualified the American Management System’s Federal Financial

System (FFS) software, used by NBC.

• Integrating Financial and Performance Management Systems The FTC

maintains a data warehouse, updated daily, that accommodates both financial and

program performance data. Costs are related to Mission activities in the data

warehouse and support day-to-day operations. Efforts are continuing to improve

the integration of the data by tying a broader range of costs (e.g., training,

information technology, performance awards, furnishings) to program performance

activities in the financial system.

• Purchasing Improvements In 2003, the FTC improved financial services for credit

card transactions. Financial staff were trained on a new and interactive online

verification and reconciliation system for credit card transactions. Guidance and

instructions were developed and issued. To ensure FTC credit card users are

familiar with the new process, training and certification requirements were

established. The FTC also expanded the use of GSA Advantage, an online supply

purchasing system, to its operating bureaus. This system permits online purchase

of supplies at a competitive price through a streamlined and paperless acquisitions

process.
Part I Page 27

• Cash Management The FTC implemented a paper check conversion process to

deposit checks electronically with the Federal Reserve Bank to facilitate the

processing of merger filing fees and other payments. This process saves staff time,

provides an electronic record of deposits, and creates a seven-year archive of

checks with a Federal Reserve sponsored deadline. Also, the FTC coordinated the

seamless use of existing Treasury fee deposit and tracking capabilities to collect

and track telemarketers’ payments associated with the National Do Not Call

Registry. The agency also worked to ensure that it can track, through a secure

database, certain payment information that may be too personal to house

elsewhere.

• Capitalization Improvements The FTC improved its policy for agency-wide

capitalization of FTC-developed software and leasehold improvements. It also

improved tracking of contract service obligations and expenditures that cross fiscal

years.

Initiative: Integrating Budget and Performance

• Integrating Planning/Evaluation and Budget The FTC assigns responsibilities

to its budget staff according to program area. The FTC’s Budget Office works

closely with the programs to build budget plans that ensure the most efficient use

of the agency’s resources to achieve the goals of the annual GPRA Performance

Plan. The agency also monitors implementation of operating plans by programs

through the use of financial systems and periodic reports. The Budget Office

conducts detailed reviews of the status of programs’ budget execution throughout

the fiscal year to ensure that funds are sufficient to meet objectives. The FTC

requires program managers to report on GPRA Performance Measures each

quarter, and the FTC’s Commissioners review this information twice a year.

• Linking Goals and Objectives to Results The FTC’s Strategic Plan under the

Government Performance and Results Act (GPRA) identifies five-year strategies

and performance measures that are an integral part of the fiscal year budget

requests. Over the past year, the FTC re-examined its performance measures and

revamped those that did not effectively measure its outcomes. The FTC developed

a Strategic Plan for FY 2003 - 2008 that articulates strategies and measures that

effectively relate to outcomes and that integrate budget and performance (see

http://www.ftc.gov/opp/gpra/index.htm). In addition, the annual Performance Plans

provide an assessment of the savings and benefits to consumers and businesses

expected from the requested level of resources. Budget requests tie to the GPRA

objectives, and all requests to increase resources are justified in the Performance

Plan and tie to programs.

• Aligning Budget Accounts and Program Activities The agency allocates

resources to programs based on program goals and workload projections. As

workload projections change throughout the year, the agency shifts resource
Part I Page 28

allocations accordingly, making certain to comply with congressional parameters.

The FTC uses its annual GPRA Performance Plan as the guideline to align agency

resources to achieve targets. FTC budget staff work closely with program

managers to ensure alignment of budget accounts, staff, and program activities to

support program goals.

• Integrating Technology The FTC implements a life cycle management approach

to managing and developing agency technology. Through this approach, the

agency identifies existing products and services, determines how frequently each

should be reassessed, and schedules reassessments for the next several years.

When a new project is proposed, technical staff evaluate its cost and relative need

and, if the project is justified, make a recommendation to senior program managers.

Review and decision making by program managers ensure that technological

projects are aligned with the agency mission and integrated with performance in

budget requests.

• Improving Integration The agency is working to improve the link between

performance and budget, both by refining the selection and the measurement of

performance goals and measures, and by developing improved management

processes for data use and analysis. Over time, this work will enhance agency

performance by improving the quality, access, and timeliness of management

information throughout the FTC.
Part I Page 29

Ongoing Challenges

Consumer Protection

The FTC currently enforces a number of statutes and regulations that address consumer

privacy. Consumers increasingly are concerned about the ways in which their personal

information is used; consequently, companies that make specific privacy promises need

to live up to them. Doing so will enhance the confidence that consumers have in the

marketplace. The FTC is concerned with the misuse of personal information and is

committed to both law enforcement and education of consumers and businesses on this

subject. Areas of current focus include telemarketing, spam, identity theft, and pretexting

(obtaining consumers’ personal financial information under false pretenses), as well as

enforcement of the Children’s Online Privacy Protection Act (COPPA), the Gramm-LeachBliley Act, the Telemarketing Sales Rule (TSR), as amended in December 2002, and

Section 5 of the Federal Trade Commission Act.

Recent amendments to the TSR include initiatives designed to afford consumers greater

privacy protections. Most significantly, the amended TSR created a National Do Not Call

Registry, enabling consumers to protect themselves from unwanted and often intrusive

telemarketing calls. A national survey shows that registered consumers are receiving

significantly fewer telemarketing calls. Those registered can file a complaint when a

covered telemarketer calls. Further, the amendments to the TSR address pretexting, the

use of “pre-acquired account information” – a situation in which, unbeknownst to

consumers, a telemarketer has their billing information in hand before initiating a sales call.

Account information that has been “pre-acquired” can be misused, resulting in

unauthorized charges on consumers’ accounts. The TSR amendments also impose new

restrictions on the practice of “call abandonment” – where a consumer answers the

telephone only to find “dead air” – and require telemarketers to transmit caller-ID

identifying information.

The FTC also continues to focus on spam. In April 2003, the Bureau of Consumer

Protection released a study – the first extensive review of the likely truth or falsity of claims

appearing in spam. Reviewing a random sample of 1,000 pieces of spam, the study found

that 84.5 percent contained at least one form of deception or sold an illegitimate product

or service. During FY 2003, the FTC also hosted a public forum to explore issues relating

to the proliferation of and potential solutions to spam. The forum also examined how the

unique qualities of spam both contribute to and hinder fraud and its prosecution. The FTC

will continue to bring law enforcement actions targeting deceptive spam and will continue

to focus on the policy challenges relating to the increasing amount of spam.

Another major challenge is the problem of identity theft. In September 2003, the FTC

released the results of a survey showing that 27.3 million Americans have been victims of

identity theft in the last five years, and that identity theft losses to businesses, financial

institutions, and consumer victims are in the billions of dollars. The FTC will continue to

focus efforts on combating identity theft.
Part I Page 30

Maintaining Competition

The ongoing globalization of the economy and new information technologies have a

significant impact on Maintaining Competition activities. The continuing growth of

commerce beyond national boundaries has resulted in myriad antitrust enforcement

regimes in various jurisdictions, and variations in these regimes can interfere with the

common goal of promoting a competitive economy. In addition, the increasingly

technology-driven and knowledge-based economy has both policy and practical

implications.

Antitrust enforcement no longer stops at U.S. shorelines. Antitrust matters involving activity

in many different jurisdictions, with varying sets of competition statutes, can be costly and

inefficient. For example, the number of jurisdictions with merger enforcement regimes has

grown from just a handful in 1990 to over 65 today. The resulting costs include the cost

of complying with different regulatory mechanisms, as well as the risk of differing

outcomes. Seeking to increase both procedural and substantive convergence among

numerous merger oversight regimes throughout the world will continue to be a high priority

for the foreseeable future.
Part I Page 31

Dewie the Turtle helps the FTC remind

consumers to stay safe online and develop a

culture of security.

Future Plans/Objectives

Consumer Protection

Ongoing globalization and new information technologies create potentially enormous

benefits for consumers, but can also raise new consumer protection concerns. Examples

include opportunities for online fraud, identity theft, loss of privacy, and cross-border

frauds, such as international telephone and foreign lottery scams. The

FTC’s experience demonstrates that fraudulent operators frequently are

among the first to take advantage of new technologies. 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. The use of fraudulent

spam highlights this problem. Similarly,

telemarketing fraud and Internet fraud are

increasingly cross-border phenomena. 

To combat fraud, the FTC monitors all

marketplaces – traditional and electronic –

and focuses on the areas identified through

its Consumer Information System database to be most harmful to consumers. Attacking

telemarketing and business opportunity fraud continues to be 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 agency also uses an internal review

program (Project Scofflaw) to monitor compliance with outstanding court orders and to take

appropriate action to ensure compliance.

The law enforcement challenges in this global marketplace are considerable, and there is

little evidence that traditional scams will go away. Instead, high-tech scams likely will grow

and be more difficult to detect and pursue as they cross national borders.

Thus, it is not surprising that the FTC’s future efforts will include significant activity to

combat spam and cross-border fraud. In the spam arena, the agency works to protect

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

enforcement actions to stop deceptive or unfair spam practices, conducting research on

this topic to assist consumers, businesses, and public policy efforts, and teaching

consumers and businesses how to avoid and deal with unwanted spam. The agency’s

continuing international efforts include conducting workshops and cultivating public/private

partnerships to fight cross-border fraud, reporting to Congress on legislative changes that

would strengthen its ability to fight cross-border fraud, and pursuing bilateral and

multilateral cooperation arrangements with international agencies.

To reflect growing consumer concerns, the FTC has made the general and financial

privacy of consumers a top priority. During the next several years, the FTC will continue
Part I Page 32

to take enforcement action to stop deceptive lending practices and improper usage of preacquired account information, and to implement the TSR, as amended in December 2002,

which established a National Do Not Call Registry.

The agency also continues to take action to target fraud more effectively and efficiently

through 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 fraudulent trends

and problems as they occur. 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 collect is reliable. The FTC also continually

strives to identify new methods of mining the 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. As part of

these efforts, the FTC conducted a consumer fraud survey and currently is analyzing the

results to learn whether the complaints received by the FTC are representative of most

consumers’ actual experiences. The agency will use the results to evaluate the reliability

of the complaints that it receives and to more carefully target outreach and enforcement

efforts. In addition to targeting the most serious problems for law enforcement action, it

also encourages non-regulatory solutions that are effective but do not impede legitimate

business activity. One particular area of focus in the next several years is fraud affecting

Hispanic consumers. The FTC will use Consumer Sentinel and other data to target

deceptive and fraudulent advertising and other practices aimed at this growing segment

of the nation’s population. The agency also will develop a more systematic approach when

coordinating with criminal law enforcers as the FTC works to increase the number of

criminal prosecutions of consumer fraud.

Maintaining Competition

The increasingly worldwide scope of antitrust enforcement and the proliferation of differing

regulatory mechanisms governing mergers can impose significant costs on companies,

and ultimately, on consumers. Thus, the FTC and the Department of Justice are involved

in several formal and informal efforts to increase and improve bilateral and multilateral

cooperation in antitrust enforcement.

In addition, the growing significance of technology and intellectual property typifies the

evolutionary nature of the economy, which requires the FTC to adapt continuously.

Moreover, industrial organization economics, which underpins antitrust law and policy, also

continuously produces new learning. Thus, a key part of the FTC’s ongoing responsibilities

is to ensure that the agency remains at the leading edge of knowledge of both economic

theory and the real-world developments in the economy. The agency does so in a variety

of ways, including sponsorship of workshops, conferences, and hearings, and conducting

its own research.
Part I Page 33

Management’s Discussion and Analysis

Consumer Protection

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

business practices in the marketplace. The Mission works to accomplish this goal through

three objectives: (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

The FTC measures performance in this objective by determining the number of consumer

complaints and inquiries that are added annually to its Consumer Information System

database. The complaints in this database are used to identify problem areas as reported

by the public. This enables the agency to detect and respond rapidly to fraud, deception,

and other illegal practices, resulting in effective targeting of the agency=s law enforcement

resources. The continuous input of new complaints into the database helps the FTC and

its enforcement partners determine where and how the latest incidents of fraud may be

occurring. The target for fiscal year 2003 was to add at least 450,000 entries into the

database. At the end of the fiscal year, 944,000 entries had been added, including

321,000 relating to identity theft, 166,000 over the target of 155,000.

The FTC also shares complaints about fraud and deception relating to telemarketing, direct

mail, and the Internet with its law enforcement partners through Consumer Sentinel, a

secure Web site that provides access to nearly 1.4 million fraud and identity theft

complaints. Consumer Sentinel is accessed by more than 940 law enforcers in the United

States, Canada, and Australia through an encrypted Web site 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 number of law enforcement partners

grew by nearly 300 during fiscal year 2003, and the FTC will continue to expand Consumer

Sentinel’s reach in the law enforcement community. 

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

The FTC 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. Saving consumers money is the ultimate goal of these efforts.

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

target for fiscal year 2003 was to save consumers $400 million. The year ended with

savings to consumers of approximately $606.3 million, exceeding the target by 52 percent.
Part I Page 34

In fiscal year 2003, the FTC established two new performance measures under this

objective to report the number of data searches by FTC and other law enforcement

personnel of the FTC’s Consumer Sentinel complaints and the number of data searches

by law enforcement personnel of the FTC’s identity theft complaints. The actual number

of Consumer Sentinel searches was 27,685 (exceeding the goal of 20,000 by 38 percent.)

The actual number of identity theft searches by law enforcement personnel was 2,167

(exceeding the goal of 1,400 by 55 percent.) These new measures will be used, along with

the identity theft survey results, to refine the agency’s enforcement and education efforts

relating to identity theft. The FTC, along with the Secret Service and Department of

Justice, initiated a training program in March 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 September

2003, the FTC and its partners held 9 seminars and trained more than 1,000 persons from

more than 165 agencies. Additional training is planned and likely will result in increased

use of the Consumer Sentinel system. 

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 (www.ftc.gov) and the one-stop government Web site for consumer

information (www.consumer.gov). Messages also reach the public through the Consumer

Response Center (at 1-800-FTC-HELP), and hundreds of partners who distribute FTC

materials, link to the Web site, or post the FTC’s messages on their Web sites. The goal

in fiscal year 2003 was to reach an audience of at least 14 million with FTC education

publications. At year end, 28 million publications had been distributed, double the goal.

The large number of consumers accessing Do Not Call Registry information on the FTC’s

Web site contributed to this dramatic increase in distribution. For the fourth consecutive

year, more publications were distributed online (22.6 million) than in print (5.3 million). Of

the 28 million publications distributed, 458,000 were in Spanish. The goal for FY 2003 was

to distribute 2.5 million identity theft publications; the agency exceed its goal by distributing

3 million publications. 

To reach the expanding population of Hispanic consumers in the U.S., the FTC instituted

a Hispanic Outreach Program in 2002. This effort includes the creation of a dedicated

Spanish-language page on the FTC Web site to mirror the English-language page and

translation of more than 60 consumer publications. The program also includes significant

media outreach, with FTC staff speaking about important consumer protection issues on

major Spanish-language networks’ news shows and the FTC disseminating public service

announcements to the Spanish-language media.
Part I Page 35

Maintaining Competition

The increasingly worldwide scope of antitrust enforcement and the proliferation of differing

regulatory mechanisms governing mergers can impose significant costs on companies,

and ultimately, on consumers. Thus, the FTC and the Department of Justice are involved

in several formal and informal efforts to increase and improve bilateral and multilateral

cooperation in antitrust enforcement.

In addition, the growing significance of technology and intellectual property typifies the

evolutionary nature of the economy, to which the FTC must continuously adapt. Moreover,

industrial organization economics, which underpins antitrust law and policy, also

continuously requires new learning. Thus, a key part of the FTC’s ongoing responsibilities

is to ensure that it remains at the leading edge of knowledge of both economic theory and

the real-world developments in the economy. The agency does so in a variety of ways,

including sponsorship of workshops, conferences, and hearings, and conducting its own

research.

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

other anticompetitive business practices in the marketplace. The Mission works to

accomplish its goal by: (1) identifying mergers and business practices that harm

consumers by restricting competition; (2) using its law enforcement powers to stop

anticompetitive mergers and business practices; and (3) working to increase knowledge

and understanding of the antitrust laws and the benefits of competition among consumers,

the business community, and other government officials. These three endeavors represent

the FTC’s objectives under its Maintaining Competition Mission.

During most of the last decade, unprecedented levels of merger activity in the marketplace

dominated the FTC’s Maintaining Competition agenda, with the number, size, and scope

of proposed mergers increasing year after year. While the level of merger activity is down

considerably from its peak in 2000, the current level volume of merger transactions

remains significant by historical standards. Moreover, evidence suggests a continuing long

term trend toward larger and more complex merger transactions, which typically require

broader and more time consuming antitrust review than is necessary for smaller

transactions.

During FY 2003, the FTC continued its recent emphasis on the nonmerger portion of its

Maintaining Competition Mission, begun in 2001 as the merger wave started to ebb. In

addition, the agency has focused attention to the educational aspect of the Maintaining

Competition Mission, a key responsibility since the FTC’s inception.

Objective 1: Identify anticompetitive mergers and practices that cause the greatest

consumer injury

The FTC uses premerger notification reports required under the Hart-Scott-Rodino (HSR)

Act as its primary means for identifying potentially anticompetitive mergers. Over the past
Part I Page 36

two years, a less active economy and revised HSR filing thresholds have kept the number

of transactions reported to the antitrust agencies at moderate levels. The modified

reporting thresholds did not alter the standard of legality for mergers under Section 7 of the

Clayton Act, however, so the FTC has increased efforts to identify mergers not reported

under HSR, that might harm competition. These efforts have included 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 in identifying anticompetitive mergers and business

practices by measuring: (1) the percentage of significant merger investigations (defined

by the issuance of a formal request for additional information (a “second request”) from the

parties under the HSR Act) that result in enforcement action; and (2) the number of new

nonmerger investigations opened. 

The agency seeks to balance its available resources and the need for careful review of all

potentially anticompetitive merger transactions, so that between 60 percent and 80 percent

of HSR requests for additional information result in enforcement action. A percentage

below 60 percent may suggest that the FTC is targeting enforcement resources

ineffectively and unduly burdening businesses by investigating too many competitively

benign transactions, while a percentage higher than 80 percent could suggest that the

agency may be allowing anticompetitive mergers to go forward by focusing its review too

narrowly. In FY 2003, the percentage of completed second request investigations resulting

in enforcement action was 70 percent, exactly at the midpoint of the targeted range of 60

to 80 percent.

The Mission determined its success in identifying anticompetitive business practices by

counting the number of nonmerger investigations opened during the year, with a goal of

45 to 70 new investigations. This figure fluctuates based on the demands of the agency’s

merger caseload, which is subject to statutory time constraints, and the status of

investigations already underway at the beginning of the year. In FY 2003, the Maintaining

Competition Mission opened 50 new nonmerger investigations. This figure, representing

a modest decline from the 59 nonmerger investigations opened in 2002, reflects the

greater proportion of resources devotedto litigating significantnonmerger matters identified

and developed during the past two years.

Objective 2: Stop anticompetitive mergers and practices through law enforcement

The FTC employs 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 arrangingforrestructuring 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
1

 The FTC has adopted revised measures to replace two of these measures, beginning in FY 2004.

Part I Page 37

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.

In FY 2003, the FTC undertook 44 antitrust enforcement actions, almost equally divided

between merger (21) and nonmerger matters (23). This total represents an increase of 33

percent over the 33 enforcement actions in 2002, and an increase of 63 percent over the

27 enforcement actions in 2001. In the merger area, the FTC authorized the staff to seek

preliminary injunctions in three matters, issued one administrative complaint, and accepted

seven consent agreements for comment. In addition, merger parties abandoned ten

merger transactions in the face of likely FTC action. The FTC issued seven nonmerger

administrative complaints and accepted 16 nonmerger consent agreements for comment.

The FTC determined its success in stopping anticompetitive mergers and practices in FY

2003 by measuring: (1) the percentage of positive outcomes obtained in antitrust

enforcement actions; (2) the estimated savings to consumers resulting from FTC merger

enforcement actions; and (3) the estimated savings to consumers resulting from FTC

nonmerger enforcement actions.1

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 court after all proceedings, including appeals, have concluded.

A negative outcome occurs when parties refuse to settle antitrust concerns raised by the

agency, and the agency is unsuccessful in obtaining relief through the courts. The FTC

significantly exceeded its goal of positive outcomes in 80 percent of its enforcement

actions, achieving a positive result in all 37 of the administrative and federal court

enforcement actions it concluded during the year.

As part of its 2000 - 2005 Strategic Plan, the FTC set a goal of $4 billion in consumer

savings from merger enforcement over the five-year period. The reason for using an

aggregate figure for the period rather than yearly goals was that external factors cause

significant fluctuations in merger activity. Because this measure is being discontinued

before the end of the five year period covered under the previous Strategic Plan, the FTC

has revised the goal proportionately to $2.4 billion over the three year period 2001-2003.

During those years, the estimated consumer savings from FTC merger enforcement was

about $3.495 billion, exceeding the target by over 45 percent.

The FTC also set a goal of $1 billion in consumer savings from nonmerger antitrust

enforcement over the same 5-year strategic plan period, and similarly revised the goal

proportionately to $600 million over three years. Over the three year period, the agency’s

nonmerger enforcement resulted in approximately $606 million, exceeding the target.

Moreover, the combined three-year merger and nonmerger consumer savings exceeded

$4.1 billion, a figure 37 percent higher than the combined goal of $3 billion for the period.
Part I Page 38

Promoting Competition,

Protecting Consumers:

A Plain English Guide to Antitrust Laws

http://www.ftc.gov/bc/com pguide/index.htm

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 FTC determined its success in educating the public about antitrust law and policy by

measuring: (1) the number of initiatives

(including speeches, testimony, reports,

policy statements, etc.) undertaken to

educate the public during the year; and

(2) the extent to which members of the

public visited antitrust related content on

the FTC’s Web site.

In FY 2003, agency representatives

undertook 306 antitrust outreach efforts,

including speeches, testimony, written

comments on regulatory proposals,

policy statements, etc. This figure

represents more than twice the number

reported for 2001 and about 7 percent

more than the number reported for 2002.

Although improvements in counting

methodology likely accounted for some

of the gain, the result still shows a

significant expansion in the FTC’s public

outreach efforts during 2003.

The FTC’s Web site recorded more than

10 million hits on antitrust-related content

in FY 2003, a significant increase from

4.3 million hits in 2002 and 2.6 million

hits in 2001. This measure is significant

in that it represents initiative taken by the

public, to seek out FTC information,

rather than merely reflecting agency activities.
PART II: PROGRAM PERFORMANCE
Part II Page 1

C Identifying fraud, deception,

and unfair practices that cause

the greatest consumer injury.

C Stopping fraud, deception, and

unfair practices through law

enforcement.

C Preventing consumer injury

through education.

PART II: PROGRAM PERFORMANCE

Goal 1: 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:

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 explains to businesses

how to comply with applicable laws.

One of the greatest challenges the FTC faces is safeguarding consumer information 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. Moreover, the Internet is stimulating the development
Part II Page 2

of innovative products and services that were barely conceivable just a few years ago, and

is enabling 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, and companies that make specific promises

to consumers about privacy must honor those promises. Companies that honor their

promises 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. For example, the FTC is charged with enforcing the Children’s Online Privacy

Protection Act (COPPA) and its implementing Rule, which became effective in April 2000.

In FY 2003, the FTC brought two enforcement actions challenging alleged COPPA rule

violations. This brings the total number of COPPA enforcement actions to eight. It also

continued an extensive education campaign on children’s privacy directed to businesses,

parents, and educators. 

The FTC’s comprehensive, multi-year review of the Telemarketing Sales Rule (TSR)

revealed widespread consumer frustration over unwanted telephone solicitations, which

some see as a violation of privacy in their home. To address this concern, in December

2002, the FTC amended the Rule to establish a National Do Not Call Registry. The

Registry is up and running and being enforced. Covered telemarketers are prohibited from

calling consumers who place their telephone numbers in the Registry. By the end of

December 2003, the Registry contained more than 55 million telephone numbers. Further,

the amendments to the TSR address the use of “pre-acquired account information” – a

situation in which, unbeknownst to consumers, a telemarketer has their billing information

in hand before initiating a sales call. Account information that has been “pre-acquired” can

be misused, resulting in unauthorized charges on consumers’ accounts. The TSR amendments also impose new restrictions on the practice of “call abandonment” – where a

consumer answers the telephone only to find “dead air” – and require telemarketers to

transmit caller-ID identifying information.

The FTC also works on policy and enforcement efforts related to spam (unsolicited

commercial e-mail). In April 2003, the Bureau of Consumer Protection released the first

extensive review of the likely truth or falsity of claims appearing in spam. The study

included a random sample of 1,000 pieces of spam from three FTC data sets and found
Part II Page 3

that 84.5 percent contained false “From” lines, “Subject” lines, or message text or sold an

illegitimate product or service. During FY 2003, the FTC also hosted a public forum to

explore issues relating to the proliferation of and potential solutions to spam. The forum

also examined how the unique qualities of spam both contribute to and hinder fraud and

its prosecution. The FTC brought 19 enforcement actions targeting deceptive spam during

FY 2003.

Identity theft is another area where the FTC continued to protect consumers during FY

2003. In September 2003, the FTC released the results of a survey that found that 27.3

million Americans have been victims of identity theft in the last five years, including 9.9

million in the last year alone. Last year’s identity theft losses to businesses and financial

institutions totaled nearly $48 billion, and consumer victims reported $5 billion in out-ofpocket expenses.

Objective 1.1: Identify Practices That Cause 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 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

940 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 other law enforcement partners to coordinate

their enforcement efforts, and to spot trends and target the most serious consumer

problems. Summary and trend data are shared on the public Consumer Sentinel site

(http://www.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.

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. When they call the FTC or visit

its Web site, consumers also can receive guidance on the steps they can take to resolve
Part II Page 4

credit and other problems that may have resulted from identity theft. In FY 2003, the

agency received 321,000 identity theft complaints and inquiries, 70 percent more than the

185,000 it received in FY 2002. 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. Although most ID theft cases are criminal, the FTC

staff systematically examine complaint data for civil cases within its jurisdiction and will

bring those cases where appropriate. 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.

In addition to receiving and analyzing consumer complaints, the FTC monitors the growing

online marketplace through Web surfs, where it and partner organizations systematically

surf the Internet to identify Web sites engaged in questionable practices. In FY 2003, the

FTC led or coordinated seven surfs, focusing on spam, HIV home test kits, e-tailer holiday

shopping, bioterrorism, online gambling, SARS protection products, and other healthrelated products. When suspect sites are identified during a surf, e-mail warnings are sent

to the operators explaining the law and providing a link to the FTC Web site for further

information. If a Web operator ignores the warning, the FTC or one of its partners may file

suit.

Performance Measures and Results

To assess its effectiveness in identifying fraudulent and

deceptive practices, the agency measured the number of

consumer complaints and inquiries added to the Consumer

Information System database. Additional consumer data

enables the agency to more effectively spot trends, identify

emerging scams, and coordinate activities with other law

enforcers. In FY 2003, the FTC added 944,000 entries, exceeding its target of 450,000 by 110 percent. Under a new

performance measure for FY 2003, the FTC added 321,000

consumer complaints and inquiries related to identity theft

into its database, exceeding its target of 155,000 by 107

percent. These results reflect the increasing interest of

organizations in contributing complaint data and consumers’

growing awareness of the FTC’s online complaint form and

toll-free telephone numbers, and gives 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 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 most serious consumer problems, which currently include

identity theft, online auction fraud, Internet service provider scams, unauthorized billing

scams, pyramid and other investment schemes, travel and vacation fraud, pay-per-call

solicitation frauds, high-tech Internet-based fraud, and health care fraud.

Performance Measure 1.1.1

Annual number of consumer

complaints and inquiries entered

into database.

FY 2001 Actual: 430,000

FY 2002 Actual: 680,000

FY 2003 Target: 450,000

FY 2003 Actual: 944,000

NEW

Performance Measure 1.1.2

Annual number of consumer complaints and inquiries related to

identity theft entered into

database.

FY 2003 Target: 155,000

FY 2003 Actual: 321,000
Part II Page 5

Performance Assessment and Future Trends

Not only does the FTC’s database help identify the most serious 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, thus,

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, 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. Through econsumer.gov, 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 site to obtain

specific information about the complaints that consumers have filed.

The FTC will continue to expand the 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 and identity theft in their early stages and prevent

consumer injury. The data will be used to provide more information to the public – by

giving consumers information to protect themselves from scams and identity theft, and

informing public policy discussions about consumer protection issues in the 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.

The new performance measure regarding identity theft complaints and inquiries is proving

very timely in light of the identity theft survey results that the FTC released in September

2003. The number of victims and the dollars lost to identity theft are dramatic – 27.3

million American victims in the last five years and billions of dollars in losses to businesses,

financial institutions, and consumer victims. The FTC will continue to devote resources to

combat identity theft by fine-tuning its efforts in consumer education and outreach and

working with law enforcement authorities.

FTC staff also continue to work to analyze the results of a consumer fraud survey.

Through this survey, the FTC seeks to learn whether complaints in the database are

representative of consumers’ actual experiences. The agency also expects that the survey

results will help determine whether certain classes of consumers are not represented in the

database, so that it can target those populations with information about the fraudulent

scams they may encounter and information on how to submit complaints to the FTC either

through its toll-free numbers or Consumer Sentinel. After reviewing the survey results, the

FTC will analyze its enforcement efforts to ensure that it is addressing the most costly and

prevalent forms of fraud through legal action. Based on the information received through
Part II Page 6

the survey, the FTC also intends to review and, if appropriate, revise its performance measures. To assist in reaching these goals, the agency expects to conduct this survey

periodically.

Objective 1.2: Stop Practices That Cause Consumer Injury

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, and pretexting (the use of

pre-acquired account information), as well as enforcement of the Gramm-Leach-Bliley Act,

the TSR as amended in December 2002, and Section 5 of the FTC Act. 

Telemarketing fraud continues to be a significant law enforcement priority. The FTC will

continue to pursue telemarketing cases and enforce the National Do Not Call Registry. 

Other priorities include protecting consumers from more traditional scams that have moved

to the Internet.

One of the most effective tools in the battle against fraud 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. 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 2,200 law enforcement actions in 78 sweeps against fraudulent operators. This total

includes 522 actions brought by the FTC alone. Thus, for every action that the FTC brings,

its partners bring an average of three. In FY 2003, the FTC led 5 sweeps resulting in a

total of 175 actions, including 30 FTC actions. In addition to leveraging agency resources,

sweeps generate substantial local, regional, and international interest, thus further raising

consumer awareness.

The number of consumer protection cases with an international component continues to

rise. In October 2002, the Chairman unveiled a five-point plan to fight cross-border fraud.

Work has been completed on two points – a workshop on public/ private partnerships to

fight cross-border fraud (held in February 2003) and an OECD Recommendation on CrossBorder Fraudulent and Deceptive Commercial Practices. Two more prongs of the plan –

pursuing bilateral and multilateral cooperation arrangements and providing technical

assistance to developing countries on consumer protection issues – are ongoing. Work

also continues on the fifth project – issuing a report to Congress with recommendations for

legislative changes strengthening the FTC’s ability to combat cross-border fraud.

In the nonfraud area, the FTC works to ensure compliance with the consumer protection
Part II Page 7

statutes that it enforce. Given its broad jurisdiction and limited resources, it focuses on the

most serious identified problems, using varied enforcement tools and encouraging selfregulation 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. The FTC also works with industry and interested groups to

support private initiatives where appropriate.

Performance Measures and Results

The FY 2003 goal was to save consumers more than $400 million by stopping fraudulent

and deceptive practices in the marketplace. The FTC surpassed this target, saving

consumers an estimated $606.3 million. Consumer savings are measured by estimating

the annual fraudulent and deceptive sales made by defendants in the 12 months prior to

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 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 small

companies, as well as scam artists operating large

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. 

The FTC established two new performance measures

under this objective in FY 2003 to report the number of

data searches by FTC and other law enforcement personnel of its Consumer Sentinel

complaints and the number of data searches by law enforcement personnel of its identity

theft complaints. With 27,685 data searches of the Consumer Sentinel database, the

agency surpassed its target of 20,000. Also, with 2,167 data searches by law enforcement

personnel of the identity theft database, it surpassed its target of 1,400. 

Performance Measure 1.2.1

Dollar savings for consumers from

FTC actions that stop fraud and

deception.

FY 2001 Actual: $487 million

FY 2002 Actual: $561 million

FY 2003 Target: $400 million

FY 2003 Actual: $606 million

NEW

Performance Measure 1.2.2

Number of data searches

conducted by FTC and law

enforcement personnel of the

FTC's Consumer Sentinel

database.

FY 2003 Target: 20,000

FY 2003 Actual: 27,685

NEW

Performance Measure 1.2.3

Number of data searches by law

enforcement personnel of the

FTC's identity theft database.

FY 2003 Target: 1,400

FY 2003 Actual: 2,167
Part II Page 8

Performance Assessment and Future Trends

Based on Consumer Sentinel data, Internet fraud is significant and growing. The FTC is

targeting the most pervasive online fraud and moving quickly to stop large, fast-growing

Internet scams. In FY 2003, the FTC brought 58 cases involving fraudulent or deceptive

marketing practices related to the Internet, bringing the total number of Internet cases filed

by the FTC since 1994 to more than 300. The FTC expects fraud to continue to grow as

the use of the Internet rises 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 its effectiveness in preventing consumer injury. 

With an estimated $350 billion to spend, the Hispanic population in the United States is

attracting many advertisers. Given the size and influence of this growing market, the FTC

will be targeting 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

identifying the top problems for Hispanic consumers, products and services that are

extensively advertised, particularly in major media, and practices causing significant

economic or other harm.

The FTC also will enhance coordination with criminal law enforcers. By developing

contacts with criminal prosecutors in a more systematic manner, the agency hopes to

increase the number of criminal prosecutions of consumer fraud, including conduct that

FTC staff have discovered, investigated, or prosecuted civilly.

In addition to fighting fraud, the FTC also focuses on compliance through traditional advertising laws and FTC Rules and Guides. It works cooperatively with its law enforcement

partners, industry, and consumer groups to extend the reach of its efforts 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.

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 enforcement 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 its customer

law enforcement agencies greatly enhances their abilities to mine the information in the

complaint database and ultimately prosecute identity theft crimes more successfully.

Consequently, the FTC initiated identity theft training for local, state, and federal criminal
Part II Page 9

enforcement groups and, through September 2003, trained more than 1,000 law enforcers

from more than 385 agencies. Through the new performance measures, the FTC will

monitor the success of these training programs to determine how such training should be

modified to better meet the needs of its partner agencies.

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 of

preventing consumer injury, increasing business compliance, and adding 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 (e.g., the FTC’s comment to the Department

of Housing and Urban Development on the Real Estate Settlement Procedures Act and its

comment to the Food and Drug Administration on trans-fatty acid labeling and claims), and

collaborative activities with other organizations, the FTC reaches tens of millions of

consumers and businesses every year. In FY 2003, the agency issued 105 new or revised

publications – 92 for consumers and 13 for businesses – covering traditional subjects such

as charitable donations and credit issues; high-tech subjects such as electronic banking,

Internet auctions, and spam; and timely subjects such as identity theft, telemarketing, and

privacy.

The Consumer Information System database helps the FTC tailor its education efforts to

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

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 promotions, products, and services. It continues to manage the

consumer.gov Web site, 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 2003, the FTC took the lead for the fifth consecutive year in organizing

National Consumer Protection Week. This year’s theme campaign was information

security. Its partner organizers were the National Association of Consumer Agency

Administrators, AARP, the National Consumers League, the Council of Better Business
Part II Page 10

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

instituted an Hispanic Outreach Program. This outreach effort included a dedicated

Spanish-language page on the FTC Web site and translations of more than 60 consumer

publications, including 32 publications during FY 2003.

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 its information will

prove useful. In FY 2003, the FTC exceeded its goal of 14

million publications by distributing 28 million publications.

In FY 2003, the FTC established two new performance

measures to report the annual number of education

publications distributed to or accessed electronically by

consumers relating to identity theft, and the annual number

of Spanish-language publications distributed to or accessed

electronically by consumers. The FTC distributed 3.0 million

publications related to identity theft, exceeding its goal of 2.5

million. The FTC also distributed 458,000 Spanishlanguage publications. Since the Hispanic Outreach

program is relatively new and publications have been

translated into Spanish only recently, no target was

established for FY 2003. The FY 2003 actual number will

be used to establish the target in future fiscal years. 

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. 

Performance Measure 1.3.1

Total number of education

publications distributed to or

accessed electronically by

consumers.

FY 2001 Actual: 15.0 million

FY 2002 Actual: 19.3 million

FY 2003 Target: 14.0 million

FY 2003 Actual: 28.0 million

NEW

Performance Measure 1.3.2

Number of education publications

related to identity theft distributed 

to or accessed electronically by

consumers.

FY 2003 Target: 2.5 million

FY 2003 Actual: 3.0 million

NEW

Performance Measure 1.3.3

Number of Spanish-language

education publications distributed 

to or accessed electronically by

consumers

FY 2003 Target: TBD

FY 2003 Actual: 458,000
Part II Page 11

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

FTCdistributed 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 2003, it distributed 22.6 million through

its Internet Web site alone. 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 increase its use of the Web site, http://www.ftc.gov, and the

multi-agency Web site, http://www.consumer.gov, to reach consumers, businesses, law

enforcement officials, and the media more efficiently and effectively.

In FY 2004, 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 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. 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 new 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.
Part II Page 12

C Identifying anticompetitive

mergers and practices that

cause the greatest consumer

injury.

C Stopping anticompetitive

mergers and practices through

law enforcement.

C Preventing consumer injury

through education.

Goal 2: Prevent Anticompetitive Mergers and Other Anticompetitive

Business Practices in the Marketplace

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. Anticompetitive mergers and business conduct that

diminishes competition deny consumers these benefits, and are illegal under the antitrust

laws. Thus, the FTC’s goal is to promote vigorous competition by applying the antitrust

laws to: (1) prevent anticompetitive mergers; and (2) 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:

First, the FTC staff identify 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 procompetitive. 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

a consent agreement 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
Part II Page 13

enable consumers to identify anticompetitive activity more readily and bring it to the FTC’s

attention for possible enforcement action.

Objective 2.1: Identify Anticompetitive Mergers and Practices That Cause

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, because both under- and over-enforcement can harm consumers’ interests.

Thus, the agency seeks to undertake enforcement action against transactions or conduct

that harms consumers, but at the same time, avoids taking enforcement action that

prevents businesses from completing transactions or engaging in practices that

fundamentally benefit consumers. The agency 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 collateral, 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 are the

agency’s primary means for identifying potentially anticompetitive mergers, acquisitions,

and joint ventures (collectively referred to as mergers). 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 antitrust

review.

The FTC’s staff carefully examine each transaction reported under HSR 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 by the HSR

requirements. 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 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. Because of 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 significant investment of resources by both

the agency and the parties.

Most HSR transactions raise no antitrust issues, and the antitrust agencies permit these
Part II Page 14

to proceed. Together, the FTC and the Department of Justice Antitrust Division issued

second requests in less than 5 percent of reported mergers in FY 2003. Moreover, the

enforcement agencies frequently complete the initial screening in less time than is allowed

under the HSR Act. In these instances, the government grants “early termination” of the

HSR waiting periods, allowing transactions to go forward more quickly. Approximately 63

percent of filed transactions received early termination in FY 2003.

Amendments to the HSR Act, effective in 2001, modified the criteria governing when the

reporting requirement applies. Thus, the antitrust agencies now receive fewer formal notifications of proposed mergers under the HSR Act. This change in HSR filing thresholds did

not change the standard of legality under the antitrust laws, however. 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

agency now devotes more effort to identifying non-reportable mergers that may harm (or

may have harmed) competition. 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. Consistent with this increased focus, more than a

quarter of the agency’s merger enforcement actions in FY 2003 involved transactions not

subject to HSR reporting requirements.

In FY 2003, even though the FTC had fewer mergers to review compared to recent fiscal

years, the volume of merger activity remained significant by historical standards and the

agency examined a number of very large and complex transactions. Antitrust review of

large transactions, such as the $60 billion merger of Pfizer, Inc. and Pharmacia

Corporation reviewed by the FTC this fiscal year, is invariably much more complex and

time consuming than is the case for smaller transactions. Large, multifaceted transactions

are more likely to raise antitrust issues, and those issues may involve a number of

separate product and geographic markets, each requiring separate analysis. For example,

from FY 1999 to FY 2003, the FTC’s review of 17 grocery retailing and petroleum industry

mergers required examination of the mergers’ competitive effects in 305 separate markets,

an average of nearly 18 markets per transaction. The agency opened more merger

investigations in FY 2003 than in FY 2001 or FY 2002, perhaps foreshadowing an upswing

in merger activity in the coming fiscal years.

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 pursues a “positive agenda” of planned initiatives; that is, it takes a systematic and

proactive approach to identifying specific conduct that is likely to pose the greatest threat

to consumer welfare. Fundamentally, the focus is on the types of practices, such as

agreements among competitors, that are most likely to harm consumers. Other relevant

considerations include:
Part II Page 15

C Whether the relevant sector of the economy is one, such as health care or energy,

that has a significant impact on consumers' daily lives;

C The deterrent effects of antitrust enforcement on businesses;

C Whether the FTC has enforcement experience in an area that will enable the

agency to make an impact quickly and more efficiently; and

C Whether the matter presents an opportunity to contribute positively to the

development of antitrust law.

Thus, in FY 2003, for example, the FTC brought several important nonmerger cases

resulting from the work of two task forces focusing on substantive areas of law (the NoerrPennington and State Action doctrines). In addition, the agency has increased its focus

on the health care sector of the economy, which is of crucial importance to consumers.

In addition to continuation of a lengthy series of hearings on antitrust in the health care

sector, the agency obtained ten consent agreements and issued three administrative

complaints in the health care area during FY 2003.

Performance Measures and Results

The FTC used two performance measures to gauge how well it identified anticompetitive

mergers and practices in FY 2003.

The first measure was the percentage of HSR second

request investigations concluded during the fiscal year that

ultimately resulted in enforcement action (i.e., consent

agreements, administrative complaints, Commission

authorizations to seek a preliminary injunction, and merger

transactions abandoned after the FTC initiated an antitrust

investigation). The goal for this measure was for at least 60

percent, but no more than 80 percent of second request

investigations, to result in an enforcement action. The

universe for this measure consists of investigations

completed during the fiscal year, regardless of when the

second request was issued, because second request

investigations often extend beyond fiscal year boundaries.

Matters ultimately resulting in enforcement action typically

entail more investigation than those that do not, so limiting

the universe to those transactions in which a second request was issued and the matter

was concluded within the same fiscal year could skew the results by disproportionately

excluding enforcement outcomes.

Meeting the minimum percentage set by the goal (60 percent) signifies that the agency

Performance Measure 2.1.1

Percent of HSR requests resulting

in enforcement action.

FY 2001 Actual: 68%

FY 2002 Actual: 68%

FY 2003 Target: 60-80%

FY 2003 Actual: 70%

Performance Measure 2.1.2

Number of nonmerger

investigations opened per year.

FY 2001 Actual: 56

FY 2002 Actual: 59

FY 2003 Target: 45-70

FY 2003 Actual: 50
Part II Page 16

effectively identified likely candidates for enforcement action during the initial HSR waiting

period. The upper bound of the target range on this measure is also important, though the

rationale may be less clear. 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 – perhaps approaching certainty of a violation – 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. Thus,

a result approaching 90 or 100 percent on this measure would suggest that the agency

potentially had failed to pursue some illegal mergers.

In FY 2003, the FTC took enforcement action in 70 percent (14 of 20) of the second

request merger investigations concluded during the fiscal year, a slight increase over the

68 percent reported for both FY 2001 and FY 2002, and precisely at the midpoint of the

desired range for this measure.

The FTC measured success in identifying possibly illegal conduct by counting the number

of nonmerger investigations opened. While the mere opening of a formal investigation does

not signal the presence of anticompetitive conduct, evidence and a viable legal/economic

theory of consumer harm are prerequisites for opening investigations. The FTC’s staff

screen hundreds of allegations of illegal conduct each fiscal year, but few present sufficient

grounds for formal investigation. Therefore, the number of investigations opened reflects

the FTC’s success in identifying conduct that may be anticompetitive, along with the level

of resources available to devote to this area.

FY 2003 was successful in terms of identifying anticompetitive conduct in the marketplace.

Based on historical data, the FTC established a goal of opening 45 to 70 nonmerger

investigations over the course of each fiscal year. The agency met this goal in FY 2003,

opening 50 nonmerger investigations. These investigations, following 59 nonmerger

investigations opened in FY 2002, reflect the greater proportion of resources devoted to

litigating significant nonmerger matters identified and developed during the past two 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. Gathering

and examining this material involves a major resource commitment by the parties and by

FTC attorneys and economists. Moreover, the law 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
Part II Page 17

as much as possible within the initial 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 2003, for example, the FTC issued second requests

in less than 2 percent of the mergers reported under HSR. 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 give careful scrutiny to potentially harmful mergers during the

HSR waiting period.

The first measure, the percentage of HSR second request investigations concluded during

the fiscal year that ultimately resulted in enforcement action, 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.

The result for FY 2003 (70 percent) indicates that the FTC issued second requests only

when a violation was more likely than not. In fact, in each of the past three fiscal years,

it was more than twice as likely as not that a second request would result in enforcement

action. While the imposition of some burden on parties to benign transactions is

inescapable, the agency has kept it to a minimal level. In FY 2003, parties to only six

transactions (about 0.6 percent of all reported transactions) had to undergo the time and

expense of a second request production that ultimately demonstrated no violation.

The number of merger enforcement actions in FY 2003 is consistent with the numbers from

earlier fiscal years, so there is no cause to question whether the presence of this measure

affected agency decision-making. In FY 2003, the FTC took 21 merger enforcement

actions, similar to the results for FY 2001 and FY 2002 (23 and 24 enforcement actions,

respectively).

The number of new nonmerger investigations in FY 2003 reflects a continued shift in the

makeup of the agency’s caseload rather than a change in performance and the number

of investigations, and is consistent with the renewed emphasis on nonmerger enforcement

since 2001. During FY 2001 and FY 2002, following the decade-long merger wave of the

1990s, the FTC was able to devote increased attention to the nonmerger portion of its

Maintaining Competition Mission. In particular, the FTC emphasized new case generation,

since the demands imposed by merger activity in previous fiscal years had left few staff

resources available to pursue nonmerger matters.

As a result of the renewed emphasis, the FTC opened 56 and 59 new nonmerger

investigations, respectively, in FY 2001 and FY 2002. The agency’s success in generating

nonmerger investigations during the previous two fiscal years allowed it to focus instead
Part II Page 18

on bringing many of those matters to completion in FY 2003, as discussed more fully

below. Thus, the significant nonmerger enforcement accomplishments over the course of

FY 2003 reflect the emphasis on nonmerger case generation during FY 2001 and FY 2002.

This performance measure provides useful, but limited, information about the agency’s

performance in identifying anticompetitive conduct. To assess its performance more

comprehensively, the FTC will use a new performance measure, beginning in FY 2004, in

lieu of the number of new nonmerger investigations. The new measure involves a ratio

similar to that used to measure success in identifying anticompetitive mergers; that is, the

FTC will compute the percentage of significant nonmerger investigations (those in which

the Commission has authorized the use of its compulsory process authority) that ultimately

result in enforcement action. Based on an assessment of past experience and the

agency’s best judgment, the initial goal will be a result of at least 60 percent but not more

than 80 percent. As with mergers, 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.

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 are therefore subject to FTC scrutiny.

The FTC directs much of its attention and resources to 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.

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 merger

parties elect not to defend a court challenge, and instead agree to resolve competitive
Part II Page 19

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 its internal administrative remedial powers to restore competition

lost as a result of the merger. Administrative litigation seeking to restore competition

following an alleged illegal merger likely will be 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 respondents (the parties

to the proceeding) “cease and desist” the conduct. The FTC also has authority to seek

relief in federal courts, though it uses 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, to 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. The

agency’s staff prepare thoroughly for litigation, whether before an Administrative Law

Judge or in federal court. The high percentage of settlements in FTC antitrust cases (or,

in the case of mergers, the parties’ abandonment of the anticompetitive transaction)

results, in large measure, from the FTC’s readiness to obtain the needed relief through

litigation, if necessary.

The FTC has placed increasing emphasis on crafting remedies that will successfully eliminate the anticompetitive effects of the activity in question and do so in a timely fashion.

As part of this strategy, the agency studies and evaluates the remedies used in past

antitrust cases, particularly divestiture orders used to resolve merger cases. This ongoing

process focuses on what makes divestiture orders most effective in preserving or restoring

competition, and on how to expedite the completion of curative divestitures.

The FTC also studies current or emerging topics involving possible antitrust enforcement

to develop policy positions. For example, in early FY 2003, the FTC’s Bureau of

Economics invited prominent experts to participate in a roundtable discussion entitled

“Understanding Mergers: Strategy and Planning, Implementation and Outcomes.” The

roundtable helped the agency’s staff to gain a better understanding of the mergers and

acquisitions process from a corporate strategic perspective, as well as the factors that
Part II Page 20

determine whether mergers succeed or fail. In addition, the FTC is conducting

retrospective studies on cases involving hospitals, the oil industry, and branded consumer

products. The learning derived from this and other research and development initiatives,

besides facilitating selection of better cases with higher positive impact, provides important

economic support that helps the agency succeed in the enforcement matters it pursues.

Performance Measures and Results

The FTC has used three measures to document success in stopping potentially

anticompetitive mergers and practices through law enforcement. These measures include:

(1) the percentage of positive outcomes when the FTC challenges anticompetitive mergers

and practices; (2) the estimated savings to consumers resulting from FTC merger

enforcement efforts; and (3) the estimated savings to consumers resulting from FTC

nonmerger enforcement efforts.

Economic theory 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 usually succeed when it challenges anticompetitive mergers and practices.

 Even if the agency successfully identifies an anticompetitive merger or practice,

consumers derive no benefit unless it obtains a positive outcome – that is, appropriate

relief, either through settlement or by persuading an adjudicator to order such relief.

Thus, the frequency with which the agency obtains positive outcomes is an important

indicator of its success in producing tangible benefits for consumers. The FTC’s goal is

to obtain a positive result in at least 80 percent of the matters in which it determines 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, such as where 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.

For example, the FTC now has several cases pending in administrative litigation that may

provide an opportunity for clarification of the scope of the Noerr-Pennington and State
Part II Page 21

Action doctrines, two exemptions to the antitrust laws that have increasing impact following

court decisions that seemingly have broadened their reach. The FTC’s mission includes

bringing cases that highlight difficult issues such as these 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. Thus, the goal on this measure reflects the reality that, even

when the agency brings a meritorious case and litigates it well, success is not assured.

Moreover, 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 goal for this measure in FY 2003,

achieving relief through litigation, reaching a successful

settlement agreement, or persuading parties not to proceed

with an anticompetitive acquisition in all 37 enforcement

matters brought to conclusion during the fiscal year.

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 by stopping

anticompetitive conduct that raises prices. In past years,

the FTC estimated the dollar savings to consumers

resulting from its enforcement actions by applying an

arbitrary percentage to the volume of commerce in the

affected markets (1 percent of the market, for two years in

merger cases and for one year in nonmerger cases) as a

very rough proxy for the actual consumer benefit. As some

stakeholders have noted, however, this methodology is flawed in certain respects.

Accordingly, the agency will replace the two “consumer savings” measures beginning in

FY 2004, as discussed below.

As noted in the FTC’s FY 2000-2005 Strategic Plan, external factors, such as level of

merger activity, may cause the results on the consumer savings measures to fluctuate

significantly from fiscal year to fiscal year. In consideration, the goals for these measures

were expressed in terms of aggregate targets for the five-year strategic plan period, rather

than as yearly targets. Because these measures are being replaced before the end of the

original five-year period, the agency has adjusted the targets on a pro rata basis, based

on three instead of five fiscal years. For merger enforcement, the adjusted target is $2.4

billion in consumer savings over three fiscal years (based on the original target of $4 billion

over five fiscal years). The combined estimated consumer savings from FTC merger

enforcement from FY 2001 through FY 2003 is over $3.5 billion, which exceeds the target

by 46 percent.

Nonmerger enforcement also benefits consumers by stopping anticompetitive activity that

Performance Measure 2.2.1

Positive outcome of cases brought

by FTC due to alleged violations.

FY 2001 Actual: 94%

FY 2002 Actual: 100%

FY 2003 Target: 80%

FY 2003 Actual: 100%

NEW

Performance Measure 2.2.2

Dollar savings for consumers

resulting from FTC actions.

FY 2003 Target: $800 million

FY 2003 Actual: $292 million

NEW

Performance Measure 2.2.3

Dollar savings for consumers

resulting from FTC actions stopping

anticompetitive nonmerger activity.

FY 2003 Target: $200 million

FY 2003 Actual: $211 million
Part II Page 22

raises prices or restricts nonprice competition. As with mergers, the FTC set a goal based

on an aggregate target for the FY 2000-2005 period under the previous Strategic Plan.

The adjusted target for this measure is $600 million over three fiscal years (based on the

original target of $1 billion over five years). The combined estimated consumer savings

from FTC nonmerger enforcement from FY 2001 through FY 2003 is $454 million,

somewhat lower than the adjusted target. Based on the upward trend on this measure,

and the number of nonmerger investigations and cases currently pending, the FTC expects

that it would exceed the original five-year performance target on this measure if it remained

in use.

Performance Assessment and Future Trends

In FY 2003, the FTC achieved a positive outcome in 100 percent of the challenges initiated

by the agency (e.g., court orders in litigated cases and negotiated settlements), exceeding

by a significant margin its goal of an 80 percent success rate. This level of success was

due, in part, to the high percentage of cases that were resolved through consent

agreements, as well as a number of merger transactions abandoned by the parties who

chose not to contest an FTC challenge. This does not diminish the accomplishment,

however, because the FTC is more likely to obtain settlements when the parties anticipate

that they are not likely to prevail in court. The FTC realistically does not expect to succeed

in every litigated case every fiscal year, however. A law enforcement agency that prevails

in every litigated matter may do so because it pursues only the cases that are easiest to

win. Particularly given the FTC’s responsibility to aid in antitrust policy development, it will

sometimes undertake difficult cases with no clear precedent. Several matters involving

difficult issues currently are pending in administrative litigation, and the outcome is

uncertain in each instance. The FTC will continue to bring law enforcement actions where

it has reason to believe that the merger or practice in question is unlawful and harms

consumers, even where litigation risks may exist. Thus, in fiscal years in which litigated

cases make up a larger proportion of the total number of resolved cases, the FTC’s

success rate may be closer to the target of 80 percent.

The pattern of consumer savings in FTC merger and nonmerger cases reinforces the point

made in the FY 2000-2005 Strategic Plan about significant fluctuations in results based on

external factors. Notably, about 70 percent of the estimated merger consumer savings

over three fiscal years is attributable to only one fiscal year, FY 2001. That fiscal year

came at the end of a period of unprecedented merger activity. One consequence, in

addition to the very high estimated consumer savings resulting from FTC merger

enforcement, was a very modest level of nonmerger enforcement resulting from the

necessary shift in resources from nonmerger to merger work. Thus, the estimated

consumer savings for nonmerger cases was $157 million in FY 2001 and $86 million in

FY 2002 (because very few nonmerger investigations had been initiated in prior fiscal

years, when merger review dominated the agency’s antitrust workload). In FY 2003, by

contrast, following two fiscal years in which the agency’s investment in developing nonmerger matters rose sharply, the estimated nonmerger consumer savings was $211

million.
Part II Page 23

What these results indicate, besides the fluctuation in results between fiscal years even

with comparable levels of effort and success, is the tradeoff between merger and

nonmerger enforcement. For this reason, it perhaps is more useful to look at the combined

results of merger and nonmerger enforcement as a gauge of the agency’s overall antitrust

activity. During the period FY 2001 through FY 2003, the total consumer savings

attributable to FTC merger and nonmerger enforcement was $3.95 billion, nearly 32

percent higher than the adjusted combined target of $3 billion.

As noted above, the FTC concluded, after careful study, that the disadvantages of the

consumer savings measures outweigh their advantages. Among the difficulties was the

implied precision in the estimates, suggesting a greater degree of accuracy in measuring

consumer benefit than realistically is possible. A related difficulty involves the assumptions

implicit in these measures. For example, the measures reflect an implicit assumption that

every agency enforcement decision is correct, for purposes of the consumer savings

measures. This assumption is problematic, however, because merger enforcement

involves making predictions about the future performance of markets under complex

alternative scenarios. While the FTC’s predictions are informed by broad knowledge about

economic theory, as well as intensive investigation into the transactions and relevant

market(s) in question, the process nevertheless requires the agency to make predictions

and, thus, is subject to error. In short, the consumer savings estimate always has been a

prediction of the effects that the agency hoped its actions would have, rather than an

evaluation of the actual effects of those actions. 

Beginning in FY 2004, the FTC will replace the consumer savings measures with new

indicators that also seek to reflect the scope of antitrust enforcement activities, but without

attempting to quantify the specific benefit to consumers. For both merger and nonmerger

enforcement, the FTC will measure the volume of commerce in markets in which it takes

enforcement action. Because external factors may cause the results to fluctuate

significantly from fiscal year to fiscal year, the targets are expressed in terms of an

aggregate target for the five-year strategic plan period, rather than as yearly figures. These

measures should provide a very similar indicator of the scope of FTC antitrust enforcement

activity, but will not include the troublesome aspects of the previous consumer savings

measures.

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 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
Part II Page 24

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. Through press releases

about FTC actions and publication of related materials on the agency Web site, the public

facts underlying FTC actions provide bases for companies to evaluate the likelihood that

other transactions likely would face challenge.

In addition, the FTC educates the public through guidelines; congressional testimony (such

as testimony on gasoline pricing and competition in the pharmaceutical industry);

conferences, hearings, and workshops (such as the series of hearings on the

interrelationship between antitrust and intellectual property law, a second conference on

factors contributing to the price of refined petroleum products, 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 FTC staff’s study on sale of wine

via the Internet).

As a complement to FTC enforcement activity, the agency also advises 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. Currently, 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-thecourt) 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.

Finally, 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 specific market(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. In addition, the FTC has sought to provide greater transparency

concerning its decision-making by issuing statements explaining why it declined to take

action in merger investigations of significant public interest. More generally, the Bureaus

of Competition and Economics each have released materials describing investigational

procedures and methods of analysis.
1 Polygram Holding, Inc., et al., Docket 9298 (July 28, 2003).

Part II Page 25

Opinions issued by the Commission in adjudicative matters not only serve as legal

precedent, but also help to explain in depth the FTC’s policies and their underlying

rationale. For example, in an adjudicative decision issued during FY 2003, the

Commission described the analytical framework it will employ for defining the bounds of

acceptable collaboration between direct rivals – including joint ventures and price fixing

agreements.2 The Commission’s opinion “synthesized” the applicable case law and sought

to eliminate confusion resulting from differing interpretations of common antitrust labels by

establishing a sliding scale approach.

As of the end of 2003, ten antitrust matters were in administrative proceedings, far more

than at any time in the past two decades. Each will provide an opportunity for the FTC to

set out in detail its analysis of important legal issues. Understanding fully what kinds of

transactions or conduct the FTC is likely to challenge, and why, greatly facilitates antitrust

lawyers’ counseling of their clients, and prevents many anticompetitive mergers from being

proposed or anticompetitive practices from being implemented.

Performance Measures and Results

In FY 2003, the FTC advised the public on its enforcement decisions by:

C Issuing press releases and related documents describing enforcement actions and

other significant non-enforcement activities;

C Issuing public explanations of its reasons not to take enforcement action in

appropriate instances to increase transparency in decision-making;

C Studying and reporting, consistent with its historic role, on significant policy issues

and competitive conditions in particular markets;

C Responding to requests from other government entities for advice on the

implications for competition and consumers of proposed regulatory actions;

C Appearing before business, bar, and consumer groups, as well as before

congressional committees, to address competition-related subjects; and

C Maintaining effective coordination and liaison with foreign competition authorities.

The FTC uses two performance measures to assess its public education efforts: (1) the

number of initiatives, including speeches, testimony, reports, policy statements, etc., taken

to educate the public during the fiscal year; and (2) the number of times that members of

the public visit antitrust-related content on the FTC’s Web site. Since the FTC publishes

virtually all significant public documents on its Web site, the number of “hits” on antitrust

content is a good indicator of the quantity of information provided to the public, as well as
Part II Page 26

its quality (because visitors will stay longer and return more often if the information is

helpful).

In FY 2003, agency representatives undertook 306 antitrust outreach efforts, including

speeches, testimony, written comments on regulatory proposals, policy statements, etc.,

an increase of 7 percent over FY 2002. Notably, FTC representatives presented

congressional testimony or major speeches on topics such as competition in the

pharmaceutical industry, legal restrictions on the development of e-commerce, new

economic arguments and evidence in antitrust investigations, and health care and

competition law and policy in the 21st century. The agency also issued a lengthy report

analyzing and making recommendations on the State Action doctrine and a study on the

impact of state laws restricting Internet sales of wine. Competition advocacy filings

submitted by the agency in FY 2003 addressed

competition in markets for legal services, gasoline,

electricity, and natural gas, and the agency also released

a number of advisory opinions providing guidance on the

legality of proposed actions by health care providers.

The FTC makes all of its reports, speeches, competition

advocacy filings, advisory opinions, and other similar

materials readily available to the public via its Web site.

The agency also regularly publishes press releases

announcing its antitrust law enforcement actions, with

links to significant underlying documents providing ample

detail. This collection of material serves as an invaluable

resource for businesses, antitrust lawyers, academic

scholars, and consumers seeking to learn more about the

FTC’s maintaining competition efforts. The Web site recorded over 10 million hits on

antitrust-related content in FY 2003, more than double the number reported in FY 2002,

and nearly 40,000 hits each business day. Although some of the increase may result from

increased overall use of the Internet as an information resource, this level of information

dissemination reflects significant public interest in the FTC and its Maintaining Competition

Mission. Moreover, the broad distribution of FTC educational and policy materials

represents a significant leveraging of the resources devoted to the FTC’s antitrust

enforcement work.

Performance Assessment and Future Trends

As described above, the FTC’s public education efforts take many different forms, and thus

are not fully revealed by the summary statistics. The FTC is strongly committed to the

importance of education and outreach and will continue to place emphasis on and expand

its activities in this area in future fiscal years.

The FTC fills two educational roles in the Maintaining Competition Mission. First,

education serves to leverage the FTC’s enforcement resources by explaining the scope

NEW

Performance Measure 2.3.1

Quantify number of education and

outreach efforts.

FY 2003 Target: TBD

FY 2003 Actual: 306 million

NEW

Performance Measure 2.3.2

Quantify number of antitrust

information of FTC Web.

FY 2003 Target: TBD

FY 2003 Actual: over 10 million
2 American Bar Association Section of Antitrust Law, The State of Federal Antitrust

Enforcement - 2001, 11 (Jan. 2001).

Part II Page 27

of the antitrust laws, demonstrating that the FTC is active in bringing enforcement actions

against certain types of mergers and practices, and signaling future enforcement intentions

– all of which serve to deter harmful marketplace activity. Just as citizens benefit from the

effect of the local “cop on the beat” in deterring crime, consumers ultimately benefit when

the FTC makes its presence visible. As noted by the American Bar Association Section

of Antitrust Law, “private compliance efforts are a critical prophylactic against anticompetitive behavior, and the effectiveness of private compliance efforts is directly affected

by the nature and clarity of the communication of enforcement priorities.”3

Second, the FTC has a unique set of tools and capabilities for analyzing important policy

issues and conveying information about competition policy to a larger community,

including, on occasion, issues over which the FTC has no direct authority. As one example

of the value of FTC analysis and information dissemination efforts, the Food and Drug

Administration relied significantly on an FTC report entitled “Generic Drug Entry Prior to

Patent Expiration” to support new rules, issued in June 2003, designed to foster

competition in the pharmaceutical industry.

Although the number of public outreach efforts in written or oral form does not directly

relate to outcomes in the marketplace, evidence nevertheless indicates that success in

communicating enforcement priorities has a strong impact on the level of anticompetitive

activity taking place. The agency has determined after careful examination, however, that

the current performance measure does not effectively measure its performance in this

area. The various items counted are not of equal weight. For example, a successful

amicus brief persuading a court to adopt a pro-consumer position likely will have far more

impact than a speech simply recounting past actions before a small group, yet no effective

way of distinguishing among different efforts has been identified. Second, measurements

of activities, such as the number of speeches given, may indicate the level of effort put

toward an objective, but not the agency’s effectiveness in accomplishing it.

With the importance of the Internet as a vital source of information in today’s society, the

number of “hits” on antitrust education and outreach material on the FTC’s Web site is a

more meaningful indicator of FTC success in educating those who influence policy, as well

as the general public, and in stimulating public interest in the agency’s work. Use of the

Internet to disseminate information about antitrust and other competition-related matters

plays an integral role in the FTC’s education and deterrence efforts, permitting the agency

to convey a wealth of information quickly, simply, and inexpensively to the business, legal,

and regulatory communities, and to consumers. This measure more directly reflects the

FTC’s effectiveness because it measures outcomes based on the agency’s constituencies’

assessment of the utility of the agency’s published materials. That is, the level of activity

on the FTC 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
Part II Page 28

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.

Because the FTC’s prevention objective has two different components – (1) educating the

legaland business communities about applicable legal standards and enforcement policies

to facilitate compliance with the law; and (2) educating the public in general, as well as

policymakers, about the benefits of competition – the FTC will use two new measures,

beginning in FY 2004. The new measures will be based on the level of traffic on pages on

the FTC’s Web site relevant to each of the two components.
Part II Page 29

Exhibit 1

Fiscal Year 2003 Performance Measures

as of September 30, 2003

Consumer Protection Mission

Goal 1: Prevent fraud, deception, and unfair business practices in the marketplace.

FY 2003

Target

FY 2003

Actual

Percent

Accomplished

Objective 1.1: Identify fraud, deception, and unfair

practices that cause the greatest consumer injury.

Measure 1.1.1: Annual number of consumer complaints and inquiries entered into database.450,000 944,000 210%

Measure 1.1.2: Annual number of consumer complaints and inquiries related to identity theft

entered into database.

155,000 321,000 207%

Objective 1.2 -- Stop fraud, deception and unfair practices

through law enforcement:

Measure 1.2.1: Dollar savings for consumers

from FTC actions which stop fraud and deception.

$400

million

$606.3

million

152%

Measure 1.2.2: Number of data searches

conducted by FTC and law enforcement

personnel of the FTC's Consumer Sentinel

database.

20,000 27,685 138%

Measure 1.2.3: Number of data searches by law

enforcem ent personnel of the FTC's identity theft

database.

1,400 2,167 155%

Objective 1.3 -- Prevent consumer injury through

education:

Measure 1.3.1: Total number of education

publications distributed to or accessed

electronically by consumers.

14

million

28

million

200%

Measure 1.3.2: Number of education publications

related to identity theft distributed to or accessed

electronically by consumers.

2.5

million

3.0

million

120%

Measure 1.3.3: Number of Spanish-language

education publications distributed to or accessed

electronically by consumers.

establish

baseline

458,000 n/a
Part II Page 30

Maintaining Competition Mission

Goal 2: Prevent anticompetitive mergers and other anticompetitive business practices in the marketplace

FY 2003

Target

FY 2003

Actual

Percent

Accomplished

Objective 2.1 -- Identify anticompetitive mergers and

practices that cause the greatest consumer injury.

Measure 2.1.1: Percent of HSR second requests

resulting in enforcement action.

60-80% 70% n/a

Measure 2.1.2: Number of nonmerger

investigations opened per fiscal year.

45-70 50 n/a

Objective 2.2 -- Stop anticompetitive mergers and

practices through law enforcement :

Measure 2.2.1: Positive outcome of cases

brought by FTC due to alleged violations.

80% 100% n/a

Measure 2.2.2: Dollar savings for consumers

resulting from FTC actions.

$800

million

$292

million

37%

Measure 2.2.3: Dollar savings for consumers

resulting from FTC actions stopping

anticompetitive nonm erger activity. 

$200

million

$211

million

101%

Objective 2.3 -- Prevent consumer injury through

education

Measure 2.3.1: Quantify number of education and

outreach efforts.

establish

baseline

306 n/a

Measure 2.3.2: Quantify number of hits on

antitrust information of FTC W eb.

establish

baseline

over

10 million

n/a
PART III:

FINANCIAL STATEMENTS AND

AUDITOR’S REPORT
 

Part III Page 1 

PART III: FINANCIAL STATEMENTS

AND AUDITORS REPORT

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 

Commission’s fiduciary responsibilities to American taxpayers. 

I am pleased to present the Federal Trade Commission’s financial statements for FY 

2003. For the seventh consecutive year, our inspector general, aided by an 

independent public accounting firm, issued an unqualified opinion on the Commission’s 

consolidated financial statements. This is the highest possible audit result. 

These financial statements fairly present the Commission’s financial position and were 

prepared in accordance with the hierarchy of accounting principles approved by the 

Federal Accounting Standards Advisory Board and the Office of Management and 

Budget Bulletin 01-09, “Form and Content of Agency Financial Statements.” 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 the current fiscal year include continuing the same high level of quality 

financial services that resulted in our unqualified opinion and improving those services. 

We will focus on preparing quarterly financial statements, developing a five-year 

financial plan, and evaluating our requirements for a new integrated financial 

management system. Through these efforts, we will strive to continue to produce 

timely, reliable, and useful data. 

Henry Hoffman 

Chief Financial Officer 








 

Part III Page 10 

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) Bulletin 01-09, Form and Content of Agency 

Financial Statements. FTC is fully committed to the principles and objectives of both 

the Chief Financial Officers (CFOs) Act of 1990 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 2003 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, 2003 and 2002. Additional information for the year 

ended September 30, 2001 is also presented for financing sources on the next page. 

The FTC had total assets of $399.9 million and $237.4 million as of September 30, 2003 

and 2002, respectively. Approximately $304.6 million and $155.9 million of the 2003 

and 2002 assets, respectively, were funds collected or to be collected and distributed 

under the consumer redress program, under the agency=s Consumer Protection 

mission. In addition, $41.2 million in fiscal year 2003 and $41.0 million in fiscal year 

2002 is held in a divestiture fund and will be subsequently disbursed per the terms of 

the divestiture agreement under the agency=s Maintaining Competition mission. 

Another $1.6 million in fiscal year 2003 and $1.7 million in fiscal year 2002 represent 

undisbursed Hart-Scott-Rodino (HSR) premerger fees to be transferred to the 

Department of Justice (DOJ) and the FTC in a future period. In addition, $52.5 million in 

fiscal year 2003 and $38.8 million in fiscal year 2002 in assets represent fund balances 

in appropriated accounts, account receivables, and net capital assets. 

Revenue and financing sources received in fiscal years 2003 and 2002 totaled $184.4 

and $160.9 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 (DNC) user fees, and reimbursements received for 
 

Part III Page 11 

services from other government agencies. Financing sources were received through 

direct appropriations, appropriation transfers and imputed for costs absorbed by others. 

Exchange revenue was $62.4 million and $69.2 million for fiscal years 2003 and 2002, 

respectively. The primary source of exchange revenue collected, $56.0 million in fiscal 

year 2003 and $67.9 million in fiscal year 2002, 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 Hart-Scott-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 DOJ. The 

disposition of amounts collected for DOJ is reported on the Statements of Custodial 

Activity. Due to the combination of changing economic conditions and the restructure 

of the filing fee reporting threshold in fiscal year 2001, merger activity over the past 3 

years has slowed. In fiscal year 2003, 968 reportable filings were received and 

processed, 174 less than in 2002. Earned revenue from HSR filing fees dropped $11.9 

million from fiscal year 2002. As a percentage of total financing sources, HSR fees 

dropped from 42.2 percent of total revenue in fiscal year 2002 to 30.4 percent in fiscal 

year in 2003. 

The second source of exchange revenue was Do-Not-Call fees. In September 2003 the 

FTC began collecting fees associated with the implementation and enforcement of the 

national Do-Not-Call registry. This registry operates under Section 5 of the FTC Act, 

which enforces the Telemarketing Sales Rule (TSR). Telemarketers under 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. The fees range from $25 for one telephone call 

to $7,375 for all telephone calls within the United States. $5.2 million in fees were 

earned in fiscal year 2003, representing 2.9 percent of the total financing sources for the 

year. 

The third source of exchange revenue was earned through reimbursable agreements 

with other federal agencies. Total earnings were $1.2 million and $1.3 million, 

representing 0.6 percent and 0.8 percent for fiscal years 2003 and 2002, respectively. 

Financing sources were received from direct appropriations from the General Fund of 

the Treasury and transfers in the amount of $115.6 million in fiscal year 2003 and $86.6 

million in fiscal year 2002. 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 General 

Fund, In fiscal years 2003, and 2002 the amount of direct appropriations and transfers 

that were recorded as a net financing source was 62.7 percent and 53.8 percent of total 

funding sources received. 
 

Part III Page 12 

Another financing source included an imputed revenue source to cover unfunded 

employee benefits in the amount of $6.4 million for fiscal year 2003, and $5.1 million in 

fiscal year 2002. This represented 3.4 percent and 3.2 percent of total financing 

sources for fiscal years 2003 and 2002, respectively. Financing sources not needed to 

fund the gross cost of operations are added to Cumulative Results of Operations and 

Net Position. The accompanying chart details the percentages of these various 

financing sources for the past three years and a detail of the funding sources for fiscal 

year 2003. 

Financing Sources as a Percentage of Total 

0%

20%

40%

60%

80%

100%

2001 2002 2003

Imputed Financing

Exchange Revenue

General Fund Appropriations and Transfers

 

Financing Sources for Fiscal Year 2003

Other

1%

HSR Fees

30%

General Fund 

Appropriations 

63%

DNC fees

3%

Imputed Financing

3%

The gross cost of operations during the 2003 fiscal year was approximately $174.7 

million, an 8.8 percent increase over fiscal year 2002. During 2003, expenses for 

salaries and related benefits totaled $114.3 million, or 65.4 percent of the gross cost of 

operations. Lease space rental amounted to $16.8 million, or 9.6 percent, and the 
 

Part III Page 13 

remaining $43.6 million, or 25.0 percent, included travel, facility maintenance and 

equipment rental, utilities, imputed benefit costs, depreciation, future funded expenses, 

and other items. This supported 1,051 staff-years which were employed in fulfilling the 

FTC=s mission. In fiscal year 2003, the net cost of operations was $112.3 million, 

compared to $91.5 million for 2002. 

Systems and Control

The FTC maintains a system of internal controls to provide reasonable assurance that 

its assets are protected from fraud and abuse, transactions are properly executed and 

recorded, and operations are conducted in accordance with established policies and 

procedures. The FTC=s accounting system conforms in all material respects with the 

principles, standards, and related requirements specified in the Federal Financial 

Management Improvement Act of 1996. 

The FTC=s accounting, personnel, payroll, and accounts payable processing is 

performed under contract by the Department of the Interior=s National Business Center 

in Denver, Colorado. FTC has controls in place to ensure the integrity of both payment 

and payroll processing. 

Custodial Activity

Fighting consumer fraud is one of the FTC=s highest priorities; consumers are bilked out 

of 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 generate substantial amounts of non-exchange revenue; a Statement of 

Custodial Activity (SCA) forms part of the FTC=s financial statement package. 

The 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. 

In addition to the fines and penalties collected and transferred to the general fund of the 

Treasury, DOJ receives, as offsetting revenue, one-half of the Hart-Scott-Rodino 

premerger filing fees collected during the year. 










 

Part III Page 24 

Notes to the Financial Statements

For the Years Ended September 30, 2003 and 2002

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, FTC’s efforts are directed toward stopping actions that threaten 

consumers’ opportunities to exercise informed choice. Finally, the FTC undertakes 

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 These funds consist of salaries and expense appropriation accounts used to 

fund agency operations and capital expenditures.

Deposit Funds These funds consist of monies held temporarily by FTC as an agent for 

others. 

Suspense Funds These funds are maintained to account for receipts awaiting proper 

classification, or held in escrow, until ownership is established and proper distributions 

can be made. 

Miscellaneous Receipt Accounts The FTC collects civil penalties and other miscellaneous 

receipts which by law are not retained by the FTC. The U.S. Department of the Treasury 

automatically transfers all cash balances in these receipt accounts 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 
 

Part III Page 25 

America and the form and content requirements of OMB Bulletin 01-09. 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 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 are contracted to administer 

the program under the oversight of FTC program offices, which 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. The funds appropriated are subject to OMB apportionment 

of funds in addition to Congressional restrictions on the expenditure of funds. Also, the 

FTC places internal restrictions 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 

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. Fund balances with 

Treasury consist of appropriated funds that are available to pay current liabilities and 

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. 

(f) Advances and Prepayments 

Payments in advance of the receipt of goods and services are recorded as advances 

and recognized as expense when the related goods and services are received. 

Advances are principally advances to FTC employees for official travel. 

(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 civil 

monetary penalties imposed as a result of the FTC’s enforcement activities and for 

uncollected redress judgments and amounts due from receivers. Since the FTC does 
 

Part III Page 26 

not retain these receipts, a corresponding liability is also recorded for non-entity 

accounts receivable. 

 

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 factors 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 receivables 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 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 using the straight-line method. Service lives range from three to 

fifteen 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 developmentin-progress 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 which 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). 
 

Part III Page 27 

(j) Undisbursed Premerger Filing Fees 

A liability is recorded for the amount of fees collected under the Hart-Scott-Rodino Act 

which are to be distributed to either the FTC or the Department of Justice (DOJ) 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 paid 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 matches the employee contributions 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. 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 2003 and 2002, the cost 

factors relating to FEHBP were $3,766 and $3,473, respectively, per employee enrolled. 

During fiscal years 2003 and 2002, the cost factor relating to FEGLIP was 0.02 percent 

of basic pay per employee enrolled. See Note 9, Imputed Financing. 

(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 
 

Part III Page 28 

1, 1984, may elect to either join FERS or remain in the CSRS. Approximately 29 

percent of FTC employees participate in the CSRS. For employees participating in 

CSRS, the FTC contributes 8.5 percent of the employee’s gross earnings to the CSRS 

Retirement and Disability Fund. For employees participating in FERS, the FTC 

contributes 10.7 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 8 percent of earnings for 2003, 7 percent for 2002, to 

TSP, but do not receive a matching contribution from the FTC. FERS participating 

employees may contribute up to 13 percent and 12 percent of earnings for the years 

2003 and 2002, respectively, to the TSP plan. For FERS employees, the FTC 

contributes 1 percent of the employee’s gross pay to the TSP. The FTC also matches 

100 percent of the first 3 percent contributed and 50 percent of the next 2 percent 

contributed. FTC contributions are recognized as current operating expenses. Although 

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 

Office of Personnel Management (OPM). 

However, the FTC recognizes the full cost of providing future pension benefits to 

covered employees at the time the employee’s 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 2003 and 2002. 

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. 

(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. 
 

Part III Page 29 

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-ScottRodino (HSR) Antitrust Improvement Act of 1976. 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. The FTC retains one-half of the HSR pre-merger filing fees collected. 

Revenue is recognized when earned; i.e., all required documentation under the HSR 

Act has been received by the agency. Fees not retained by the FTC are not reported as 

revenue and are maintained in a suspense fund until transferred to the DOJ. The filing 

fees are based on the transaction amount of the merger and follow a three-tiered 

structure: $45,000, $125,000, and $280,000. Transaction amounts over $50,000,000 

require the acquiring party to pay a filing fee. 

Exchange revenues are also earned through the collection of fees for the national DoNot-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. Fees collected over expenses are retained for use in other FTC 

missions. Authority to create the registry was ratified in Public Law 108-082. 

Consumers may register a preference not to receive telemarketing calls. Telemarketers 

who are under FTC’s jurisdiction are required to pay user fees and download the list of 

consumer telephone numbers on the national registry. Fees collected are deposited and 

credited as offsetting collections to the agency’s salaries and expense account and are 

available until expended. Transaction amounts range from $25 to $7,375. 

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. Amounts are earned at the time the expenditures are 

incurred against the reimbursable order. 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 
 

Part III Page 30 

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 2003 and 2002, the FTC received a 

financing source in the form of a direct appropriation which represented approximately 

63 percent and 54 percent of total revenues and financing sources realized and which 

funded approximately 66 percent and 54 percent of gross operating expenses, 

respectively. 

(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. 

NOTE 2 -- FUND BALANCES WITH TREASURY 

 

Fund balances with Treasury consisted of the following at September 30, 2003 and 

2002: 

Unobligated Unobligated 2003 2002

Obligated Available Not available Total Total

General Funds 32,258 $ 444 $ 8,198 $ 40,900 $ 29,599 $ 

Suspense Funds:

 Undisbursed Pre-merger Filing Fees - - - 1,600 1,683 

Deposit Funds - Redress - - - 4,755 1,646 

Total 32,258 $ 444 $ 8,198 $ 47,255 $ 32,928 $ 

The obligated balance includes accounts payable and undelivered orders which 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 deposits in transit 

for pre-merger filing fees, redress judgment amounts on deposit with FTC’s distribution 

agents, and divestiture fund deposits. A corresponding liability is recorded for these 

assets. 
 

Part III Page 31 

Cash and other monetary assets consisted of the following as of September 30, 2003 

and 2002: 

2003 2002

Non-entity:

 Redress contractors 60,199 61,275 

 Divestiture Fund (See Note 11(d)) 41,192 40,975 

Total Non-entity 101,391 $ 102,250 $ 

NOTE 4 -- ACCOUNTS RECEIVABLE 

Accounts receivable consisted of the following as of September 30, 2003 and 2002: 

2003 2002

Currently Due Allowance Net Net

Entity Assets:

Intragovernmental-

 Accounts Receivable 231 $ - $ 231 $ 155 $ 

Non-Entity Assets:

Consumer Redress 395,894 $ 156,216 $ 239,678 $ 90,851 $ 

Due from Receivers 112 - 112 2,170 

Civil Penalties 2,105 - 2,105 1,809 

Total Non-Entity Assets 398,111 $ 156,216 $ 241,895 $ 94,830 $ 

 

For more detailed information on non-entity receivables see Exhibit A. 

NOTE 5 -- PROPERTY, PLANT, AND EQUIPMENT, NET 

Capitalized property and equipment, net of accumulated depreciation, consisted of the 

following as of September 30, 2003 and 2002: 

Service Acquisition Accumulated 2003 2002

Asset Class Life Value Depreciation Net Book Value Net Book Value

Equipment & Furniture 5-10 Yrs 5,035 $ 1,706 $ 3,329 $ 2,354 $ 

Leasehold Improvements 10-15 Yrs 3,534 418 3,116 2,720 

Software 3 years 2,247 843 1,404 2,134 

Software-in-Development 1,289 - 1,289 - 

Total 12,105 $ 2,967 $ 9,138 $ 7,208 $ 
 

Part III Page 32 

Property and equipment are depreciated using the straight-line method. Depreciation 

expense was $1,420,000 and $718,000 for fiscal years ending September 30, 2003 and 

2002, respectively. See Note 15 – Change in Accounting Estimates for additional 

information regarding reclassification of assets during the year. 

NOTE 6 -- LIABILITIES NOT COVERED BY BUDGETARY RESOURCES 

Liabilities not covered by budgetary resources consisted of the following as of 

September 30, 2003 and 2002: 

(a) Intragovernmental and With the Public

2003 2002

Intragovernm ental

 O ther Liabilities:

 Civil Penalty Collections Due 2,105 $ 1,809 $ 

 Accrued FECA Claim s 433 382 

Total 2,538 $ 2,191 $ 

W ith the Public 

 Undisbursed Redress 64,954 $ 62,921 $ 

 Divestiture Fund Due 41,192 40,975 

 Redress Net Collections Due 239,678 90,851 

 Receiver Distributions Due 112 2,170 

Total 345,936 $ 196,917 $ 

 

(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. 
 

Part III Page 33 

Receiver Distributions Due represents the liability not covered by budgetary 

resources for funds sent to receivers for distribution to consumers. 

A corresponding receivable, Due from Receivers, is recorded. 

Other consists primarily of deposits in transit and undisbursed cash in the suspense 

liability account for 2003 and 2002. 

NOTE 7 -- NET POSITION 

Net position consisted of the following as of September 30, 2003 and 2002: 

2003 2002

U nexpended A ppropriations:

 U nobligated - Available 113 $ 350 $ 

 U ndelivered O rders 29 - 

Total U nexpended A ppropriations 142 350 

C um ulative R esults of O perations:

 Invested C apital 9,138 7,208 

 R etained Fees:

 U nobligated 8,529 7,463 

 U ndelivered O rders 19,948 12,986 

 Future Funding R equirem ents (9,705) (9,376) 

Total C um ulative R esults of O perations 27,910 18,281 

Total N et Position 28,052 $ 18,631 $ 

 

NOTE 8 -- COMMITMENTS AND CONTINGENCIES 

Commitments The FTC is committed under obligations for goods and services which 

have been ordered but not yet received (undelivered orders) at fiscal year end. 

Undelivered orders were $19,977,000 and $12,986,000 as of September 30, 2003 and 

2002, 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. 

On November 14, 2002, the Court of Federal Claims granted the plaintiffs’ motion for a 

summary judgment in a case brought by Department of Justice (DOJ) trial attorneys 

seeking overtime pay. The ruling indicated the attorneys were entitled to 

additional overtime pay, but did not establish either an amount of damages or 

methodology for calculating such an amount. On January 17, 2003, the court granted 

the DOJ’s motion to stay the proceedings and allow an interlocutory appeal under 28 
 

Part III Page 34 

U.S.C. Sec. 1292 to the United States Court of appeals for the Federal Circuit. 

According to the agency’s General Counsel, the circumstances underlying the DOJ 

case vary significantly from the circumstances for attorneys and other FLSA-exempt 

employees at the FTC, and that the FTC’s ultimate potential exposure in such a case 

would be limited and in any event would turn on individual, not class action, claims. 

Leases The FTC rents approximately 567,481 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 11 government-owned properties and 9 commercial 

properties. The FTC’s current leases expire at various dates through 2012. Two leases 

provide for tenant improvement allowances totaling $7,100,000, 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. The leases expire in 2005 and 2012. 

Rent expenditures for the years ended September 30, 2003 and 2002 were 

approximately $16,800,000 and $13,900,000, respectively. This amount is net of a GSA 

credit of approximately $1,900,000 for each of the fiscal years 2003 and 2002, relating 

to the main headquarters building. 

Future minimum lease payments due under leases of government-owned property as of 

September 30, 2003 are as follows:

Fiscal Year

2004 5,604 $ 

2005 14 

Total future m inim um lease paym ents 5,618 $ 

Future minimum lease payments under leases of commercial property due as of 

September 30, 2003 are as follows: 

Fiscal Year

2004 11,130 $ 

2005 11,062 

2006 10,778 

2007 10,958 

2008 11,304 

Thereafter 11,507 

T otal future m inim um lease paym ents 66,739 $ 
 

Part III Page 35 

NOTE 9 -- IMPUTED FINANCING 

Imputed financing recognizes actual costs of future benefits which include the FEHB, 

FEGLI and pension benefits that are paid by other federal entities. Imputed financing 

was composed of the following: 

2003 2002

FEH BP 3,439 $ 3,063 $ 

FEGLI 13 12 

P ension benefits 2,893 2,035 

T otal im puted costs 6,345 $ 5,110 $ 

NOTE 10 -- PENSION EXPENSE 

Pension expenses in 2003 and 2002 consisted of the following: 

2003 2002

Employer Accumulated Total Total 

Contributions Imputed Costs Pension Expense Pension Expense

Civil Service Retirement System $ 2,756 1,941 $ 4,697 $ 4,441 $ 

Federal Employee's Retirement System 137 6,634 6,771 5,874 

Thrift Savings Plan - 2,761 2,761 2,647 

 Total $ 2,893 11,336 $ 14,229 $ 12,962 $ 

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 2003 and 2002, respectively, FTC collected $113,428,000 

and $135,890,000 in HSR fees. Total collections in the amount of $57,600,000 were 

retained for distribution, of which $56,000,000 was transferred to DOJ in 2003 and 

$67,945,000 in 2002. As of September 30, 2003 the undistributed collections remaining 
 

Part III Page 36 

in the amount of $1,600,000 represent amounts to be transferred to DOJ and FTC 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 

them to the agency. The agency 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. 

(c) Redress 

The Commission obtains consumer redress in connection with the settlement or 

litigation of both its administrative and its federal court cases. The Commission 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 $101,768,000 and $42,713,000 during fiscal years 2003 and 2002, 

respectively. 

The sources of these collections are as follows: 

Source 2003 2002

Contractors 71,428 $ 35,839 $ 

Receivers 6,291 1,115 

FTC 24,049 5,759 

Total 101,768 $ 42,713 $ 

(d) Divestiture Fund 

One judgment obtained by the agency 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 balance of the account represents principal and 

related interest held at one of FTC’s contractor accounts as stipulated in the judgment. 

A corresponding liability is recorded. 
 

Part III Page 37 

(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 Statement of Custodial Activity.

(f) Receivers 

This amount represents the funds forwarded to receivers during the year for distribution 

to consumers. The agency recorded an asset, Due from Receivers, and a 

corresponding liability, Receivers Distributions Due for the amount of funds forwarded. 

These balances are reduced as the distributions to consumers are confirmed. 

(g) Redress to Claimants

Redress to claimants consists of amounts distributed to consumers by FTC, one of its 

contracted agents, the court appointed receiver, or by the defendant. In fiscal year 

2003 a total of $69,566,000 was distributed to consumers: $63,275,000 was 

paid by FTC and its contracted agents, and $6,291,000 was paid by receivers. In fiscal 

year 2002, a total of $17,293,000 was distributed to consumers: $167,178,000 was 

paid by the FTC and its contracted agents, and $1,115,000 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 

interest bearing accounts, and the interest earnings are used to fund administrative 

expenses. Contractor expenses for the administration of redress activities and funds 

management amounted to $5,286,000 and $2,281,000 during the years ended 

September 30, 2003 and 2002, respectively. Interest earned was $354,000 and 

$753,000 during fiscal years 2003 and 2002, respectively, with the difference of 

$4,932,000 and $1,528,000 representing net expense. 

 Attorney fees were $11,071,000, related to one class action case, and zero during 

fiscal years 2003 and 2002, 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 
 

Part III Page 38 

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 2003 and 2002, the agency obtained 

and reported in Exhibit A monetary redress judgments against defendants totaling 

$379,000,000 and $155,000,000, 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. There were three such cases in fiscal year 2003 in which the FTC obtained 

a judgment. In most of these cases, the judgment has ordered redress in the form of 

refunds or credits. In addition there was one case in which the defendants were 

ordered to forgive an estimated amount of $500,000,000 of outstanding consumer 

charges and to return all un-cashed checks to consumers.

The agency also obtained civil penalty judgments of $9,300,000 and $1,700,000 in fiscal 

years 2003 and 2002, 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 2003 and 2002, $88,000 and $10,000 (net of fees) were collected 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, in bankruptcy or foreign debt. During 2003 and 2002, $5,857,000 

and $32,990,000 were referred to the DMS for collection. 

Prior year recoveries include amounts collected on cases which were written off in a 

previous year. In fiscal years 2003 and 2002, $10,232,000 and $1,057,000 were 

collected. 

(l) Adjustments to the Allowance 

Adjustments to the allowance for redress, totaling $141,530,000, represent amounts 

formally written off during the year in the amount of $30,272,000 and adjustments to the 

provision for uncollectible amounts of $111,258,000. 
 

Part III Page 39 

NOTE 12 -- EARNED REVENUES

Earned revenue with the public consisted of the following: 

2003 2002

HSR Premerger filing fees 56,015 $ 67,945 $ 

Do-Not-Call registry fees 5,239 - 

Total 61,254 $ 67,945 $ 

HSR premerger filing fees earned represent one-half of fees collected under the 

provisions of the Hart-Scott-Rodino Antitrust Improvements Act. See Note 1 (p), 

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 fees for the national Do-Not-Call 

Registry. The Do-Not-Call Implementation Act, P. L. 108-010, authorizes the FTC to 

collect fees for the implementation and enforcement of the Do-Not-Call- registry. 

Telemarketers who are under the FTC’s jurisdiction are required to pay a user fee and 

download from the do-not-call 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. 

The minimum charge is $25 for downloading one area code. The maximum charge is 

$7,375 for all area codes within the United States. The Do-Not-Call registry was 

implemented during fiscal year 2003 and began operations in September 2003. 

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. 
 

Part III Page 40 

Gross Cost and Earned Revenue:

BFC Code Gross Cost Earned Revenue Net Cost

FY 2003 376 174,746 $ (62,413) $ 112,333 $ 

FY 2002 376 160,658 $ (69,204) $ 91,454 $ 

Intragovernmental Gross Cost and Earned Revenue:

BFC Code Gross Cost Earned Revenue Net Cost

FY 2003 376 43,495 $ (1,159) $ 42,336 $ 

FY 2002 376 40,694 $ (1,259) $ 39,435 $ 

NOTE 14 -- STATUS OF BUDGETARY RESOURCES 

(a) Apportionment Categories of Obligations Incurred 

Obligations incurred reported on the Statement of Budgetary Resources in 2003 and 

2002 consisted of the following: 

2003 2002

Direct Obligations:

Category A $ 87,580 106,257 $ 

Reimbursable Obligations:

Category A 70,201 67,955 

Category B 797 1,497 

Total reimbursable obligations 70,998 69,452 

Total $ 157,032 177,255 $ 

(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, 2003 has not been published as of the issue date of these financial 

statements. This document will be available in February 2004. 
 

Part III Page 41 

NOTE 15 -- CHANGE IN ACCOUNTING ESTIMATES 

In fiscal year 2003, the FTC changed the percentages estimated for development costs 

for software expenditures. Accounting standards require that the effects of a change in 

estimate should be reported in the period of change and subsequent periods. The net 

effect of this change in estimate for fiscal year 2003 is a $758,000 charge to expense. 

This is the result of the reclassification from capitalized software to software 

maintenance expense. The depreciation expense recognized had this change in 

estimate not been recorded would have been $253,000 in each of fiscal years 2003, 

2004 and 2005. See Note 5 - Property and Equipment, Net.